J&J Strong On Fundamentals

Johnson & Johnson (JNJ) has an enormously diverse revenue stream consisting of market leading products in all three of its business segments. However, due to a number of products expected to experience declining sales, revenue growth will likely slow in 2009. Incremental earnings growth will come in the form of improving margins and share buybacks.

J&J’s consistency, product diversity, financial stability and long-term growth potential make it a very attractive holding in this turbulent market. We rate the stock a Buy based on the stock’s attractive valuation and strong company fundamentals. Our price target is $70.

On January 20, 2009 Johnson & Johnson reported financial results for the fourth quarter 2008 and issued initial guidance for the year ending December 31, 2009. Revenue for the fourth quarter came in at $15.2 billion, about $1.0 billion below our forecast and down 5% from the same period in 2007.

Much of the short-fall in revenues can be explained by foreign exchange, having a 4% negative impact on the quarter for J&J. Operational growth declined by 1.0%. The Consumer, Pharmaceutical, and Medical Devices segments posted growth of 10.5%, (1.2%) and 6.4%, respectively in the quarter.

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