No One Ever Got Hurt Owning Johnson and Johnson

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Johnson & Johnson (NYSE:JNJ) is one of the best-known companies on the face of the planet. As a stock, I feel I can never go wrong recommending it. It is one of the most reliable companies I have ever come across. It is involved in many areas, mostly in healthcare products. What you may now know is how the company is organized. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics.

The Consumer segment offers a range of products that you are probably familiar with. These products are used in the baby care, skin care, oral care, wound care, and women’s health fields, as well as over-the-counter pharmaceutical products, and wellness and prevention platforms. These products are under familiar names such as Johnson’s, Aveeno, Clean and Clear, Lubriderm, Neutrogena, Listerine, Band-Aid, Neosporin, Tylenol, Sudafed, and Motrin brand names, among others. This segment markets its products to the general public, as well as to retail outlets and distributors.

The Pharmaceutical segment provides various products in the areas of anti-infective, antipsychotic, cardiovascular, contraceptive, gastrointestinal, hematology, immunology, infectious diseases, metabolic, neurology, oncology, pain management, thrombosis, and vaccines. This segment distributes its products directly to retailers, wholesalers, and healthcare professionals for prescription use.

The Medical Devices and Diagnostics segment offers various products to treat cardiovascular disease, makes orthopedic and neurological products, creates professional diagnostic products, manufactures infection prevention products, and crafts disposable contact lenses. This segment distributes its products to wholesalers, hospitals, and retailers, used principally in the professional fields by physicians, nurses, hospitals, and clinics.

Now that we have an understanding of the company, I think it is prudent to walk through the company’s recent performance highlights so that you can understand why I will always recommend this company over the long term. The company’s most recent quarter saw sales of $19.5 billion, an increase of 9.1 percent compared to the second quarter of 2013. Operational results increased 9.4 percent. Domestic sales increased 14.9 percent. International sales increased 4.4 percent, reflecting operational growth of 5 percent.

Taking into account the company’s operational expenses and sales data, the company saw net earnings and diluted earnings per share of $4.3 billion and $1.51, respectively. It is important to point out that these results include a charge for after-tax special items of approximately $0.4 billion, primarily related to an increase in the company’s litigation accrual as well as integration and transaction costs related to the acquisition of Synthes (NASDAQ:SYMX).

Further, you should be aware that last year’s quarter’s net earnings included a charge for after-tax special items of approximately $0.5 billion, which slightly affects comparability. But excluding these special items, net earnings for the current quarter were $4.8 billion and diluted earnings per share were $1.66, representing increases of 11.3 percent and 12.2 percent, respectively, versus last year. This is incredible growth for such a large company.

Alex Gorsky, chairman and CEO, said: “Our strong second-quarter results reflect the continued success of our new product launches and the progress we have made in achieving our near-term priorities. Significant advancements are being made in the treatment options and access to care for patients and customers around the world. Our diversified business model, focus on long-term growth drivers and talented colleagues position us well in this evolving and dynamic global health care market.”

No one ever got hurt buying and holding Johnson & Johnson. And yet again, the company crushed estimates. What makes this stock a buy going forward, besides its uncanny reliability, is that it increased its earnings guidance for full-year 2014 to $5.85-$5.92 per share. Raised guidance is always music to Wall Street’s ears. I wouldn’t be surprised to see the company come in at the high end or exceed these estimates.

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Disclosure: Christopher F. Davis holds no position in Johnson & Johnson and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $120 price target.

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