Johnson

& Johnson (JNJ) (Overweight) Current Price: $88.73 Target Price: 95.58 Johnson & Johnson, together with its subsidiaries, engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics., and wellness and prevention platforms under different brand names. The pharmaceutical segment (38% of 2012 sales) includes products in therapeutic areas including anti- infective, anti-psychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. Principal pharmaceutical products include Remicade (sales of $6.1 billion in 2012), Procrit/Eprex ($1.5 billion), Velcade ($1.5 billion), Risperdal Consta ($1.4 billion), Prezista ($1.4 billion) and Concerta ($1.1 billion). The medical devices and diagnostics segment (41%) sells a wide range of products, including Ethicon's wound care, surgical sports medicine and women's health care products; Cordis's circulatory disease management products; Lifescan's blood glucose monitoring products; Ortho Clinical Diagnostics' professional diagnostic products; Depuy/Synthes orthopaedic joint reconstruction and spinal products; and Vistakon's disposable contact lenses. The consumer segment (21%) primarily sells personal care products, including non-prescription drugs, adult skin and hair care products, baby care products, oral care products, first aid products, women's health products, and nutritional products. Major brands include Band-Aid Brand Adhesive Bandages, Imodium A-D antidiarrheal, Johnson's Baby line of products, Neutrogena skin and hair care products, and Tylenol pain reliever. Johnson & Johnson has over 250 operating companies selling products across the globe. Despite its size, JNJ is highly innovative, and it seeks to maintain leadership positions by aggressively funding new product development. R&D spending in 2012 totaled $7.7 billion, representing 11.4% of sales. As of January 2013, JNJ had some 17 drugs in late-stage development, most of which were in Phase III trials or under FDA review. Key new recent launches included Prezista for HIV, Xaralto for acute coronary syndrome, Invega for schizophrenia, and Zytiga for prostate cancer. In May 2013, JNJ said it plans over 10 new product filings, as well as more than 25 significant line extensions to be filed by 2017. Some of the more exciting new therapies, in our opinion, include Invokana, an innovative treatment for diabetes; Simeprevir, a hepatitis C drug that was granted FDA priority review status; and ibrutinib, a breakthrough treatment for leukemia. JNJ as uniquely situated with unmatched depth and breadth in growing global health care markets with solid positions in drugs, medical devices and consumer products. In our opinion, new drugs such as Xarelto and Zytiga should lead pharmaceuticals growth, while the June 2012 acquisition of Synthes should drive gains in medical devices. Synthes should significantly enhance JNJ's orthopedics business, and provide important operating synergies. JNJ projects EPS accretion from Synthes of $0.10-$0.15 in 2013. We also see better results on the consumer side, with about 75% of recalled OTC products to be back on the market in 2013. Highlights

July 16, Q2 earnings release, street consensus averaged 1.39 EPS JNJ acquired orthopedic products producer: Synthes, strengthen its market share in the specific sub sector. 2012 Business segment sales
Consumer 38% 21% Medical Devices and Diagnoskcs Pharmaceukcal

41%

2012 Twelve moths sales by region

West Hemisphere Europe 25% Asia, Africa 20% U.S

11% 44%

Note that almost 66 percent of JNJs sales came from outside of US. In the eyes of rising interest rates, JNJ should have adequate hedging program to work against the possible inflations in the distant future. Although internal growth is a key objective, the company has also been pursuing strategic acquisitions. In January 2010, JNJ acquired Acclarent, an R&D firm working on new devices to treat ear, nose and throat conditions. The December 2006 acquisition of Pfizer's consumer health care business added leading brands such as Listerine, Nicorette, Lubriderm, Visine, Neosporin, Sudafed, Zantac and Benadryl. In mid-June 2012, JNJ acquired Synthes for $19.7 billion in cash and stock. A Swiss maker of skeletal fixation implants and other orthopedic products, Synthes earned $967 million on sales of about $4.0 billion in 2011, the deal should significantly enhance JNJ's global reach in innovative orthopedics and provide important operating synergies. JNJ has effectively funded the entire acquisition via overseas domiciled cash, with the stock portion financed indirectly with overseas cash. This strategy, which avoided the hefty tax on repatriated cash, is enabling quicker-than-expected deal EPS accretion estimated by JNJ to be $0.10-$0.15 in 2013. Other important acquisitions in recent years include Crucell, a Dutch maker of vaccines; Micrus Endovascular, a maker of devices to treat strokes; Cougar Biotechnology, a firm engaged in R&D on anticancer drugs; Mentor Corp., a supplier of aesthetic products; Omrix Biopharmaceuticals, a maker of biosurgical and immunotherapy products; and Conor Medsystems, a producer of a cobalt chromium coronary stent that incorporates innovative drug delivery technology.

 During 2012, the company generated some $12.5 billion of free cash. As of the end of March 2013, the company had about $22 billion of cash and investments, and $16 billion of debt. In mid- April 2013, JNJ projected 2013 sales growth in the 4.7%-5.7% area, and EPS in the $5.35-$5.45 range, assuming foreign currency exchange rates remain constant at mid-April 2013 levels. Fundamental outlook for the pharmaceuticals sub-industry for the next 12 months is neutral. Although the sector continues to face top-line pressure from patent expirations on many top-selling drugs, as well as from foreign exchange fluctuations, overall industry profits should hold up relatively well, helped by expanding sales of new innovative drug therapies and margin improvements accruing from cost restructurings and merger synergies. EPS comparisons should also benefit from common share buybacks. While we see new health care reform legislation continuing to negatively affect industry profitability, we see benefits accruing from significant expansion of the market stemming from new coverage provided to up to 32 million currently uninsured Americans starting in 2014.We favor the shares of firms with well defined growth prospects and generous dividend yields, as we believe they should perform relatively well over the coming quarters. Year to date through June 21, the S&P Pharmaceuticals Index was up 17.3%, versus an 11.7% rise in the S&P 1500 Composite Index. We expect prospects for the generic/specialty drug sector to remain favorable. We see a large number of major drugs losing patent protection over the next few years, providing significant opportunities for this group. Valuations and forecasts Our fundamental value for JNJ is based on the streets estimation of annual EPS of $5.45 for the fiscal year 2013. With five years of history, excluding the Q4 2011 result, we have approximated the EPS growth will be around 2.32% per annum. We then estimated the EPS to be 4.85 in 10 years, and by discounting the future price by our required rates of return for equity we arrived to our forecasted intrinsic trading price of $95.58. JNJs successes on the acquisitions and research developments have contributed many rounds of profits and expectations for the companys prospect. With multiple lines of products and being the pioneer of innovations, it has engaged various kinds of pharmaceutical explorations in search of new medications and products. Each of these developments would have to go through several stages of testing and approvals before initiating the production stage. As a result, our estimation of JNJs intrinsic value may be subject to effects of the success/failures of thee trail drugs which will not be obtainable by investors or business reporters until the information is released. And by observing JNJs quarterly results in the past, we see similar fluctuations in each quarter which would bring our estimations
Earning Per Share 1Q 2013 2012 2011 2010 2009 2008 2Q 3Q 4Q Year 1.22 E1.39 E1.38 E1.30 E5.45 1.41 0.5 1.05 0.91 3.86 1.25 1 1.15 0.08 3.49 1.62 1.23 1.23 0.7 4.78 1.26 1.15 1.2 0.79 4.4 1.26 1.17 1.17 0.97 4.57

JNJ Intrinsic Value EPS e xpected EPS Growth (Assumption) PE DIVIDEND PAYOUT EXPECTED STOCK RETURN

3.86 2.32% 24.14 64% 1.04

Forecasted Stock Price i n 2022 Earnings Per Share after the 10th year

117.15 4.85

TOTAL DIVIDENDS Forecasted Stock Price i n 2022+DIVIDENDS

27.83 144.98

Net Present Value 95.58 Recommendations (Overweight) JNJ is a very versatile in terms of the number of projects and initiatives involved in order to further increase at the business earnings in the future; however, based on the calculated justified P/of 18x and the current level of 24X, intuition is suggesting that the stock is currently being overbought at the moment. But yet, the current price might be factoring in the successes of some of the future project/acquisitions which would ten justify for paying a stock with potentials (of profitable researches) that hasnt not been completely priced in.
Direct Competitor Comparison

JNJ
Market Cap: Employees: Qtrly Rev Growth (yoy): Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Operating Margin (ttm): Net Income (ttm): EPS (ttm): P/E (ttm): PEG (5 yr expected): P/S (ttm):

COV

NVS
129,000 0.02 57.80B 0.68 17.15B 0.22 9.66B 3.94 18.08 2.54 3.02

PFE
201.09B 89,400 -0.09 57.60B 0.81 25.34B 0.32 10.52B 2.09 13.57 4.57 3.46

249.65B 27.27B 175.03B 127,600 43,400 0.09 0.05

68.59B 12.17B 0.68 21.74B 0.26 10.44B 3.68 24.14 2.58 3.63 0.57 3.29B 0.22 1.85B 3.85 15.06 1.86 2.25