Johnson & Johnson Prescribes Healthy Returns Without M&A or Breakup
Johnson & Johnson
The stock closed Friday at $105.10, up more than 16% on the year to date. Johnson & Johnson shares are outperforming the health care sector's 12% gain. As it stands, very few drug/med-tech companies have performed as well, especially given Johnson & Johnson's size ($300 billion market cap).
These same investors who think they know the company better than its management does have made a lot of money, proving that investors only need to invest and let company leaders lead. That's the way it works. As evidenced by the company's strong profit growth (up 35% in April) and the stock's YTD performance, management knows what it's doing. But that hasn't stopped the nervousness.
[Read: 14 Insanely Important Biotech/Drug Trading Catalysts ]
With Johnson & Johnson's P/E now over 20, doubling that of Pfizer
The way I see it, Johnson & Johnson's fundamentals support a sustained uptrend toward $120 in the next 12 to 18 months, representing 14% upside. This is assuming management can maintain a long-term revenue and free cash flow growth rate of 5%. And with meaningful improvements made each quarter in areas like orthopedics and medical devices, selling the stock here would be a mistake.
What's more, Johnson & Johnson's unexpected spike progress in its immunology platform makes it a worthwhile threat in territories currently dominated by Merck
This is what Medtronic understood by picking off Covidien. It's also why in April Zimmer Holdings
[Read: Medtronic’s Play for Covidien Is No Solution for Silicon Valley ]
Johnson & Johnson's management understands that amid all of the noise about M&A, organic growth and the so-called diminishing productive balance, Johnson & Johnson can/will deliver where it matters the most -- on the bottom line.