Analyzing Ken Fisher's Holdings: Johnson and Johnson (JNJ)

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Feb 11, 2015
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Ken Fisher (Trades, Portfolio) is a billionaire fund manager managing ~$48 billion worth of equity assets through his investment advisory firm Fisher Asset Management, LLC. The firm uses a combination of top-down macroeconomic research and bottom-up, fundamental stock selection process in order to identify potential candidates for its portfolio. Johnson & Johnson (JNJ, Financial) is one of the major holdings of the firm. As of the last quarter, Fisher Asset Management was holding 10,424,607 shares of the company. Here's a look at the company in detail.

Johnson & Johnson and its subsidiaries are engaged in the research and development, manufacture and sale of a broad range of products in the health care field. The company’s primary focus has been on products related to human health and well-being. The company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The company's EPS forecast for the current year is $6.21 and next year is $6.55. According to the consensus estimates, its top line is expected to decline 2.6% current year and grow 3.5% next year. It is trading at a forward P/E of 15.32. Out of 21 analysts covering the company, nine are positive and have buy recommendations, 11 have hold ratings and one has an underperform rating.

The company's stock price is on an uptrend since mid 2012.

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The following table shows revenue, EPS and other key metrics of the company over the last couple of years.

Table1: Financial Data of Johnson and Johnson

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Source: Gurufocus Value Screens

Johnson & Johnson business is well-positioned for the long-term growth. The company has delivered 31 consecutive years of adjusted earnings increases, and 52 consecutive years of dividend increases to its shareholders. Its products are industry and segment-leading with 70% of its sales coming from the products with number one or number two market share position, and 25% of sales coming from products it has launched in the past five years. The company also has a very good record in terms of returning cash to shareholders. Johnson and Johnson has returned about 70% of its free cash flow over the past decade, which amounts to about $90 billion.

Going forward, the company is set to benefit from healthcare reform efforts and improving economies which are helping more people access affordable quality care. The governments across the world are increasingly recognizing the need of continued innovation to address healthcare needs and are taking steps to reward innovation through FDA and EMEA designations that are helping to speed product review times. Johnson & Johnson with its deep product pipeline across the entire enterprise will benefit from this trend.

The company pharmaceutical divison has launched 14 new products since 2009, driving cumulative sales of over $27 billion. This trend is expected to continue going forward and management believes that Johnson and Johnson's drug pipeline is poised to yield 10 potential new product filings between 2013 and 2017. Similarly, the company's medical divison has launched 50 major products since 2012 and have more than 30 new filings pending as of the end of the last year. This divison is also benefiting from growth in the emerging markets where it is capitalizing on the scale, depth and breadth of the portfolio the company can offer to governments and large healthcare systems. The company grew sales in China by nearly 15% on an operational basis last year.

Johnson & Johnson is trading at is trading at 15.32 times its FY2016 EPS. The company's EPS has grown from $3.86 in fiscal 2012 to $5.70 in fiscal 2014. It is expected to grow another 9% in fiscal 2015. The company has a dividend yield of 2.80% and a payout ration of 48%. I believe the stock is a good buy at the current levels.