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3 Takeaways From Johnson & Johnson's Results

Damien Conover, CFA

Damien Conover: Johnson & Johnson reported fourth-quarter earnings that were largely in line with our expectations, and we came away with not making any change to our fair value. We continue to believe Johnson & Johnson is worth $130 per share and continues to have a wide economic moat. 

I think there's three important takeaways from the results. First off, the results were in line with our expectations, again driven by strong drug sales. So these drug sales really offset some of the more slow growth that we see out of the consumer goods and the medical device product group. 

The second key takeaway here is the guidance for 2019 was a little bit softer than we were anticipating on the top line but stronger with other income. What other income is, is largely divestitures that the company plans to make to help grow the earnings. The net impact of those two things largely doesn't change our fair value. 

Then the last point that I'd make about the call that they hosted earlier today was that they talked about the talcum powder litigation concerns that have been really over the stock, really over the last couple months, and they continue to believe in the safety of this product. We continue to believe that this litigation overhang will not cause a significant impact to our fair value. We currently model in close to $2 billion in litigation concerns revolving around the litigation for the talcum powder, but again we don't anticipate that to have a material impact on our overall valuation. 

The net take away from our perspective is, the fourth-quarter results were largely in line with our expectations; the 2019 outlook is a little softer than we thought, but it doesn't impact our fair value; and we continue to believe the stock is fairly valued.