Is Johnson & Johnson a ‘sell’ in 2018?

Johnson & Johnson may not be having a great 2018 so far with the stock ticking down about 8% since the year started. But is it time to get rid of the world’s largest pharma company’s shares? Let’s see.

J&J has always been a gem of a stock; it has never dropped beyond the trend line for a very long time. With diverse operations from consumer health to medical devices, J&J is a pretty stable pharma company compared to its peers. That is probably why only a small percent of the analysts (two in 23) covering the stock has given it a Sell rating.

Unlike some of the other pharma companies that depend solely on a single drug, J&J has a broad spectrum of top-selling drugs including Remicade, Imbruvica, and Darzalex. While the latter two has displayed robust sales over the past few quarters, Remicade’s sales have seen a slowdown after the introduction of its biosimilar version in the market in 2016. Following this, sales of the flagship drug fell as much as 10% year-on-year.

Meanwhile, the stellar performance of Imbruvica and Darzalex is expected to continue and partly offset Remicade decline in the upcoming quarters. This will likely spur a high single-digit growth in Pharmaceutical revenue in 2018.

In other segments, there are chances that baby care products will weigh on Consumer product sales, driven by too much competition from smaller players. Meanwhile, the acquisition of Abbott Medical Optics is expected to provide a fillip to Medical Devices segment. J&J had bought the ophthalmic device maker in an all-cash $4.325 billion deal in February last year.

The acquisition of Abbott Medical Optics is expected to provide a fillip to Medical Devices segment.

J&J is a tech-savvy company that never shies away from adopting the latest trends in the market, which is perhaps why the company witnessed a six times sales growth in the past three years. The management is ever alert about the changing landscape of marketing, and hence the worst case scenarios are possible only from two directions – lawsuits or liquidity fails.

The New Jersey-based company will need to peg its rising debts in light of slowing earnings. Operating expenses were 12% higher in 2017, and the company needs to keep a tab on this too.

The stock had a massive fall early last month after a report suggested that documents related to court proceedings could damage the company’s reputation.

An even more significant looming threat is the legal ramification of the around 5,500 lawsuits it is facing. The stock had a massive fall early last month after a report suggested that documents related to court proceedings could damage the company’s reputation. The court had in November ruled in favor of the company in a lawsuit by a woman who alleged that she had developed ovarian cancer after using their talc products.

Apart from these two risks, J&J is still very much a prestigious stock in the portfolio, which is expected to see decent growth this year. Not to be forgotten is its healthy dividend yield of 2.61%, an add-on for income investors.