Johnson & Johnson Should Break Up Now: Opinion

NEW YORK (TheStreet) -- As much as I have liked health care giant Johnson & Johnson (JNJ), I think the company has reached the point where it no longer deserves the benefit of the doubt that it continues to receive.

Rivals such as Pfizer (PFE), Novartis (NVS) and Covidien (COV) now appear more nimble and adaptable, but Johnson & Johnson comes across as incredibly stubborn for being unwilling to concede that it should break itself up.

Its insistence upon remaining one entity is remarkable when rivals such as Abbott Labs (ABT) and Pfizer have enjoyed positive results from opting to separate their businesses.

What's more, Johnson & Johnson has made some recent mistakes, including product recalls, and until recently its stock performance has been broadly uninspiring.

And in terms of valuation, there are considerably better options available within the sector. In my mind, Johnson & Johnson's current price-to-earnings ratio of 18.8 isn't justified by the company's current growth. Meanwhile, Pfizer and Novartis have lower P/Es.

These two rivals offer gross and operating margins that are either similar to or better than Johnson & Johnson's.

The stumbles that JNJ has suffered over the past five years lend support to those that call for its breaking up into smaller parts. But in disappointing fashion, the company's management continues with its attitude of "we know best."

Will this insistence cause the company to lose some loyal investors for good?

As much as I appreciate a good turnaround story, JNJ does not yet fit the criteria absent its removal of the "too big to succeed" overhang. For as dominant as it has been over the past several decades, it needs to embrace that 2.2% revenue growth is all that analysts are projecting. When has that ever been enough? It's hard to imagine any other company today that has shown more evidence of resting on its laurels.

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At the time of publication, the author had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.