In 2012 it seemed that Johnson & Johnson (JNJ 0.82%) had one problem after another. Recall after recall, the company's brand and reputation were tarnished. Despite a few hiccups in 2013, it seems the company will get through this year much easier than it did in 2012. Year to date, shares are up more than 33% while the Dow Jones Industrial Average (^DJI 0.67%) has only increased by about 22%.
Johnson & Johnson has a number of different revenue streams that allow the business to function despite problems in one unit. This separation helped get the company through the recalls, product safety issues, and lawsuits in the past and will likely help even more in the future.
While we can't predict the problems Johnson & Johnson may face in 2014, management has proven that (while not always in the best manner) it can deal with problems and we know that the business separation helps mitigate some of the risk. One revenue issue it will have to tackle in 2014 is the patent expiration of its blockbuster Remicade arthritis drug in parts of Europe -- with the drug completely losing protection in the EU in 2015 and the U.S. in 2018. This is a big issue because the drug accounted for 9.6% of the company's revenue last quarter.
But despite this potential loss, analyst believe Johnson & Johnson will increase earnings per share in the coming quarters when compared to how it did in 2013, but not by much. Estimates for fourth-quarter 2013 results, which will be reported Jan 20, 2014, are earnings per share of $1.20 -- for the same quarter in 2012, it made $1.19 per share. First-quarter 2014 results are expected to be $1.48, while in 2013, its EPS stood at $1.44. Revenue growth for the next two reported quarters is also only supposed to increase by 2.1% and 3.4%, respectively.
Whether you are a long-term Johnson & Johnson shareholder or someone looking to buy shares today, remembering that the company has a $265 billion market cap and that it is not a fast-growing organization will help set your expectations in line with reality. Having said that, however, it doesn't mean the stock is a bad investment or that you shouldn't be buying shares today. All things considered, the 2.8% dividend yield, diverse business, and strong brand name will continue to make the company a staple in consumers' minds.
I will leave you with this thought: Over the past few years, it may have seemed that, if the company could just stop making mistakes, the business would perform well and the share price would rise. And for the most part, that is what we saw happen in 2013. Moving forward, I believe that same story will only continue to play out. No news will be considered good news for Johnson & Johnson shareholders in 2014 and for many more years to come. If the business continues to churn, investors will be rewarded with a quarterly dividend that increases yearly and a decent share-price return.
