Some Thoughts On JNJ and Abbott Labs

By Vitaliy Katsenelson, CFA   

January 26, 2007

1. It seems that 2007 should be a brighter year for Johnson & Johnson (NYSE JNJ).  In 2006 the company faced major drug expirations which dampened revenue growth.
2. I really like the Pfizer’s (PFE) consumer business acquisition. Despite having a fairly good product line, Pfizer Inc was a pharmaceutical company that happened to have consumer products which came with the Warner Lambert acquisition. JNJ on the other hand has a culture of running diverse healthcare and consumer businesses.
3. It reminds me of 3M Company (NYSE MMM), as there is a synergy between different operating units as they share their R&D findings.
4. JNJ has a greater global consumer distribution network than Pfizer, therefore, it will be able to increase sales of PFE’s consumer unit by taking the products to places that they’ve not gone before (sounds Star Treckish, doesn’t it?)
5. Abbott Laboratories (ABT) received an incredible price (34 times operating earnings) for its diagnostic unit that was sold to General Electric (NYSE GE) (great job!).
6. I always looked at ABT as a mini-JNJ; it is a diversified healthcare company which is not heavily dependent on blockbusters. The company had a good quarter and should have a good next year. It is trading at about 18x earnings, higher valuation than JNJ’s 15x earnings, but it should have a bit higher growth rate.

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