Prolonged stock market declines are good for something: They make stand-out companies truly stand out. Johnson & Johnson
J&J reported record fourth-quarter sales of $9.4 billion, up 14.3%. For all of 2002, sales rose 12.3% to $36.3 billion, and net earnings increased 17% to $6.7 billion. Profit margins were all up from last year: gross margin, 71%; operating margin, 26%; net, 18%
Continued strong sales of anemia drugs drove pharmaceutical sales 15% higher last year, to top $17 billion. Drugs are usually the star at J&J, but it may be medical devices this year.
Medical device sales rose 13% to $12.6 billion last year. This spring, J&J expects to launch Cypher in North America, a drug-coated stent that promises J&J the lion's share of a billion-dollar market for at least the intermediate term. Annual stent sales are expected to at least double from $2 billion following the introduction of drug-coated stents.
Management professed comfort with 2003 earnings-per-share estimates of $2.62, up 17% on about 11% sales growth, but it warned against raising estimates. An expected slowdown in drug sales will likely staunch any upside surprises in 2003. At $54 per share, J&J sits at 24.7 times past earnings and 20.6 times 2003 estimates. It's at about 21 times free cash flow (FCF).
Here's annual growth in...
Sales Oper. Inc. FCF 1999 14.7% 35.6% 17.2% 2000 6.5% 16.8% 27.2% 2001 10.5% 14.9% 36.8% 2002 12.3% 21.1% 25%-30% (est.)
Having grown during an economic downturn (so far) and a stock market collapse, J&J is all the better prepared for the economic upturn that should eventually follow. So, when the market tumbles and you want investment ideas, consider what's left standing.
