Johnson & Johnson Riding High On Ebola Vaccines

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Jan 21, 2015

As the continent of Africa and some of the afflicted nations across the world battle the Ebola virus, Johnson & Johnson (JNJ, Financial) is turning into a hot stock to watch out for as it is in the process of developing vaccines for the virus. Working with multiple organizations worldwide, Johnson & Johnson is developing the supposed dual-dose vaccine and has already received a $117 million deposit in its consortium from the Innovative Medical Initiative, a Europe based health organization. The World Health Organization (WHO) had estimated that the affected number of victims worldwide was 21,000 while 8,500 have already succumbed to the viral disease. The company, already in the early stages of clinical trials, will be putting in a further $200 million to speed up this initiative. This development rubbed off well on its stock previous week, as it added 1.51% on its previous closing figures, selling the stock at $104.04 a share. However, this is a 0.51% decline on a year-on-year comparison.

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Gaining position

The vaccine on Ebola will push Johnson & Johnson to better margins and dividends for its investors, as the potential for their invention is rather significant. With Africa being a major afflicted area and the numbers swelling slowly, the company’s reach will increase, which means higher volumes of vaccine sales with the Johnson & Johnson logo on them. Stocks have been up 10% during 2014, which is a significant number considering that the market has been really jittery with the latest trends of weakening oil prices. Johnson & Johnson has been like a buffer to hold the market steady during these rocky times.

Analysts speak

Analysts have themselves a busy time ahead, predicting what Johnson & Johnson will give back to the investors. Popular readings say revenues are slated to hit $18.56 billion mark for the fourth quarter, putting the earnings per share (EPS) to $1.26 for each unit. On a yearly basis, revenue should be touching $74.73 billion, which would be a 4.8% booster over the 12-month time period. The EPS is expected to be $5.96 a share, which would be a significant 8% jump year on year.

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If one watches the average 12-month price, it has hovered around the $110 mark, which will go on to churn out a 6% gain. However, if the stars shine bright and the target price of $123 is achieved, premium would go in the regions of 18% for the average investor. With regards to some negative speculation, there was recent discussion about the company breaking up on the lines of its various divisions. But those sentiments can be put behind as the gross profit margin level 70.76%, outdoes most names in the industry including Covidien (COV, Financial) with 60.79% and Novartis (NVS, Financial) with 66.76%.

Ebola taking a toll

Not just the ones mentioned, but other big competitors of Johnson & Johnson have big PR issues to take care of. According to recent findings, GlaxoSmithKline (GSK, Financial) and Pfizer (PFE, Financial) have been slammed by international government agencies and charities over the overpricing of critical vaccinations like Ebola and pneumonia, which are victimizing more and more people in countries of Africa. The criticism has been slapped in view of the fact that, healthcare and charity workers dealing with the major health issues, have alleged that the volumes sold to West African countries have minimised simply because it makes little business sense for these bigger names to make them. In fact, Professor Adrian Hill from Oxford University explained the complicated dynamics of the industry, saying “Commercial vaccine supply is monopolised by four or five mega-companies ... Unless there's a big market, it's not worth the while of a mega-company. There was no business case to make an Ebola vaccine for the people who needed it most. First because of the nature of the outbreak; second, the number of people likely to be affected was, until now, thought to be very small; and third, the fact that the people affected are in some of the poorest countries in the world and can't afford to pay for a new vaccine.” He went on to suggest that if there is a limited investment making a small quantity of vaccines available, as soon as anything develops in that regard, the savings could actually be larger, and many more lives could be saved.

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The final thoughts

Johnson & Johnson is a hot buy stock and will remain so for the year to come. Apart from the shaky PR ground that the competitors are standing on, they are also one of the very few who have made such organized efforts towards tackling the WestAfrica-born disease so effectively. This would mean that the moment the process of clinical trials get over, the company can ship in chunk loads, and set the cash registers ringing and get a market leader’s position, though ethical doubts will always be there for the reason. 2015 hasn’t yet been a great year, but then like most profitable stocks, it could mean a silence before the high tides, and prices of Johnson & Johnson shares could rise of the 12-month period making investors wealthier by healthy margins.