As the world’s leading manufacturer of health care products, Johnson & Johnson (NYSE:JNJ) operates in nearly 60 countries and sells its product in about 200 countries. Nearly 55% of Johnson & Johnson’s revenue is derived from international markets. Over the past 131 years, the company has diversified its business into three core segments: pharmaceutical, medical devices and diagnostics, and consumer.
The pharmaceutical segment (roughly 40 percent of revenue) consists of five therapeutic areas: immunology, infectious diseases, neuroscience, oncology, and cardiovascular and metabolic diseases. Notable industry-leading drugs in the company’s pipeline include: immunocology drug Remicade and psoriasis drug Stelara. New drugs in the pipeline that are key to the company’s growth include: Xarelto, Darzalex, and Imbruvica.
The medical devices and diagnostics segment (roughly 40 percent of revenue) consists of a variety of products that are used in the orthopaedic care, surgical care, cardiovascular care, vision care, and diabetes care markets. The company’s R&D efforts in this segment have resulted in next-generation products that support its robust revenue base.
The consumer segment (roughly 20 percent of revenue) consists of baby care products, oral care products, beauty products, over-the-counter medicines, cold and flu products, allergy products, ibuprofen products, and acid reflux products. Notable products include: Listerine, Neutrogena, Tylenol, Sudafed, Benadryl, Zyrtec, Motrin, Band-Aid, Neosporin, and Pepcid.
Johnson & Johnson’s three core business segments generate substantial cash flow. The company’s healthy cash flow is approximately 17 percent of total revenue – higher than industry peers. Between Johnson & Johnson’s diverse business segments, strong product pipeline, and robust cash flow generation, the company benefits from having a very wide economic moat. Additionally, the company’s three-pronged revenue base insulates its operations from economic downturns, offering shareholders a defensive growth opportunity.
In terms of revenue growth, Johnson & Johnson is slightly above the industry average of 9.8 percent, coming in at 10.3 percent. The company’s gross and net profit margins are also above the industry average, coming in at 75.78 percent and 19.15 percent respectively. On the other hand, the company’s current debt-to-equity ratio is below the industry average, coming in at 0.48. However, that is a positive sign as it implies that debt levels have been appropriately managed.
In terms of valuation, Johnson & Johnson is trading at a healthy Price/Earnings ratio of 24.11, below or in line with its industry peers: Merck & Co is trading at 55.17, Lilly & Co at 39.55, and Pfizer at 22.09. Among its peers, the company has the highest trailing twelve-month net income, coming in at 15.8 billion. Overall, Johnson & Johnson boasts industry-leading revenue growth, expanding profit margins, robust cash flow, well-managed deleveraging efforts, and healthy valuation levels. The company is a prime defensive growth opportunity for investors.