Johnson & Johnson (NYSE:JNJ) Pharmaceuticals Segment Is the Company’s Future

October 13, 2017, 09:19 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Johnson & Johnson (NYSE:JNJ) is about to report its third quarter earnings, but from the company’s past performance its star performer is the pharmaceuticals segment. The company’s consumer division has been lagging in performance given that it registered declining overall sales in both 2015 and 2016.

Article Summary Below.

Article Summary

JNJ pharmaceuticals segment is outperforming the consumer segment.

There’s significant growth potential in both segments.

A focus on both segments will fuel JNJ’s future growth.

Here’s the trading report for JNJ

Despite the star performance of its pharmaceuticals division the company is investing more in the development of new drugs given that it recently filed an application for the approval of its new prostate cancer medication. The new drug known as apalutamide is meant to treat men with nonmetastatic castration-resistant prostate cancer (CRPC).

The company faces stiff competition in the pharmaceutical segment from companies such as Pfizer Inc. (NYSE:PFE) and Merck & Co., Inc. (NYSE:MRK) among other smaller companies. However, JNJ has a significant market share in the pharmaceuticals segment especially after its recent mergers, which has left the company currently in the process of integrating AMO and Actelion.

Another division that could be doing much better is the company’s consumer segment, which has not been performing well, especially in international markets. Despite the consumer division registering poor growth figures, some consumer segments have recorded positive growth in the last two years, which include over the counter medicine and beauty products.

The consumer division could also contribute significantly to the company’s future growth especially if the company focuses on its consumer medicine and beauty segments. These two segments have potential for more growth as they are currently performing well in the company’s main North American market where it generates about 40% of its consumer sales.

The company’s fundamentals are quite solid given that it has been paying a dividend for the past 55 years, a trend which is likely to continue into the future. The company’s current operating margin is 15%, which is moderate as compared to a company such as Reckitt Benckiser Group Plc (LON:RB), which has a 20% free cash flow to sales ratio.

Therefore, it is evident that JNJ has significant potential to grow its revenues, increase its margins and pay higher dividends to its shareholders. The question remains whether it is a good investment at its current valuation.

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