Johnson & Johnson Hits Record High Despite Declines in Baby Care
Johnson & Johnson (JNJ) - Get Report share prices reached new heights Tuesday morning after reporting better-than-expected second quarter earnings.
Shares in the pharmaceutical company, which has a market cap of $343.7 billion, hit $127, an all time high, in pre-opening trading Tuesday, after its reported earnings per share of $1.74 beat Wall Street's consensus estimate by six cents. The stock fell back to $124.93 by midday, though it was still up approximately 1% from the market's open.
Sales for the second quarter were up 2.3%, from to $36 million from $35.2 billion from the same period in 2015. Sales in the U.S. rose at more than three times that clip, at 7.4%.
"Johnson & Johnson delivered another strong pharmaceutical quarter," analyst Glenn Novarro of RBC Capital Markets said. "When pharmaceuticals perform well the stock performs well."
Not all segments saw growth, however. Baby care, for one, saw yet another slump in sales, to $102 million in the second quarter of 2016 from $104 million for last year's second quarter.
Alex Gorsky, CEO of Johnson & Johnson, conceded as much during Tuesday morning's earnings call, noting that the company needs to improve in its baby care segments and make further inroads in China.
Gorsky and the other J&J executives on the call said they would stick to their current M&A strategy.
"The M&A approach that we talked about in the past is a balanced one," Gorsky said, noting that the most of the 124 deals J&J has done in the past 14 years have been smallish.
"We look at tuck-ins, midsize and large deals," he said. "Tuck-ins are those where we feel we can make the most value."
In the second quarter, J&J completed five, including NeuWave Medical, BioMedical Enterprises, HIPOGLOS, NeoStrata and Vogue International.
Gorsky added that within the medical device division, the company can look to grow, particularly in vision, including devices within eyes or surgical devices.
However, high purchase prices could hold back further acquisitions in the near term.
"There are some expectations that are still not normalized for appropriate valuations in the market," Dominic Caruso, chief financial officer of JNJ said during the earnings call. "That's a factor that'll take time and we're patient with that."
Caruso also dismissed investor concerns that M&A is hamstrung because J&J holds much of its cash overseas to avoid U.S. tax.
"Whether or not the cash is trapped overseas or not is not at all an impediment in our ability to do acquisitions," he said."We'll obviously try to find a way to do [deals] on a tax efficient basis, but we can continue to borrow to do the acquisitions."
Jim Cramer, founder of TheStreet, saidJ&J has "such great organic growth... They have an anti-cancer franchise that's really re-rating them. That's how the stock is going."
He noted that the company hasn't had to do what most other large cap pharmaceutical players have-acquire a biotech company-to keep up that growth.
"This is the fastest growing pharmaceutical company other than Bristol Myers in pure drugs," Cramer said. "They just keep coming up with big drug after big drug."