SYK - Johnson & Johnson - A Lot Of Moving Parts But Perhaps Finally Lurching In The Right Direction
2024-07-03 09:58:47 ET
Summary
- JNJ shares have underperformed for years, with multiple contributing causes including upcoming generic competition for Stelara, uncertainty around talc litigation, and questions about internal growth capabilities.
- The pharmaceutical pipeline shows promise, and I like the "franchise/platform" approach in oncology, immunology, and neuroscience, but clinical and competitive risks are real.
- I'm more skeptical of management's growth targets in MedTech, as I feel the company has often come up short versus rivals when it comes to disruptive innovation.
- Long-term revenue growth around 5%, EBITDA margins moving toward 40%, and mid-to-high-20%'s FCF margins can support a fair value in the $160-$180 range.
The last couple of years have not been particularly good to Johnson & Johnson ( JNJ ) stock. Although the pharmaceutical business has generally performed well, the loss of Stelara to generic competition is going to create significant headwinds for the business in the near term, and it remains to be seen if management’s target of “high mid-single-digit” growth for the MedTech business is really achievable given stiff competition across the businesses in which it operates. On top of all that, it has yet to be determined if litigants in the talc will agree to a settlement that would let JNJ put that mess to rest....
Johnson & Johnson - A Lot Of Moving Parts, But Perhaps Finally Lurching In The Right Direction