5 Reasons the Boring Parts of Johnson & Johnson's Business Should Generate Excitement

Posted on Top Stories at 10:56 pm on June 18, 2017 by admin

Johnson & Johnson ‘s (NYSE: JNJ) consumer and medical device businesses weren’t exactly called boring at the Goldman Sachs healthcare conference on Thursday. But they might as well have been.

A Goldman Sachs analyst said that all of the action over the past few years has been in J&J’s pharmaceutical segment with the other segments serving as “anchors.” Sandi Peterson, J&J’s executive vice president and group worldwide chairman, disagreed.

More importantly, Peterson discussed how the company’s consumer and medical device segments will grow in the future. Here are five reasons she gave why these “boring” parts of J&J’s business could become much more exciting.

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Image source: Getty Images.

1. Demographics

Sandi Peterson likes the long-term prospects for J&J’s consumer business driving growth for the overall company. One reason she’s upbeat is that she says “the demographics are in our favor in the consumer business in a big way.” Although Peterson didn’t elaborate, she does appear to make a good point.

The world’s population is growing most rapidly in developing nations. Many of these countries, particularly China and India, have expanding middle classes. That’s the primary target demographic for many, if not all, of J&J’s consumer healthcare products. And while Peterson didn’t mention how demographics could help the company’s medical devices segment, these same trends could also generate greater demand for devices sold by that part of J&J’s business.

2. Acquisitions

Peterson noted that Johnson & Johnson has completed several acquisitions recently in its consumer segment. She also mentioned that the medical devices segment is doing some “interesting tuck-in acquisitions.” Her comments underscore how important acquisitions are to the company’s growth strategy for the two business units.

Each of these segments made notable acquisitions over the 18 months. In 2016, the consumer segment bought Vogue International, which markets hair-care and other products in addition to closing five other deals. J&J’s medical devices segment completed an acquisition of Abbott Medical Optics from Abbott Laboratories in February 2017.

3. Innovation

While Johnson & Johnson will achieve some growth through acquisitions, Peterson also said the company would grow organically. A key to making that happen is innovation. Peterson pointed to several areas in which the consumer and medical devices segments are already innovating.

J&J’s consumer business is focusing much of its innovation efforts on reaching customers through social media, mobile devices, and e-commerce. The medical devices segment is using visualization technology and digital and reagent technology to change how surgeries are performed.

In addition, Peterson highlighted J&J’s Verb Surgical joint venture with Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) . She said the joint venture company is using “the most advanced developments in robotics, not old technology” in developing robotic surgical systems. Peterson added that while the robotic surgical systems will begin deploying within a couple of years, she doesn’t expect that they will “move the needle” for J&J until 2020.

Robotic surgical system

Image source: Getty Images.

4. Globalization

Another way that the consumer segment will achieve growth is through brand globalization. Peterson pointed out how sales for J&J’s Neutrogena products are growing in other countries. She said that the launches of this brand in Europe and Asia have been very successful.

Globalization also works in the opposite direction. Peterson stated that J&J’s consumer segment is bringing one of its European brands, Le Petite Marseillais, to the U.S. in a major way.

5. Differentiation

A recurring theme in Peterson’s remarks at the Goldman Sachs conference was about how Johnson & Johnson’s consumer and medical devices segments will differentiate themselves from the competition. In particular, she said that the company’s size and breadth of operations will differentiate it in ways that provide significant competitive advantages.

Peterson singled out the medical devices segment as an example. She said that J&J isn’t just selling products to hospitals. The company is working with C-level executives to address business challenges by bringing a comprehensive understanding of the healthcare landscape to the table. She said that J&J is “doing interesting things in a really different way” with hospital systems outside of the U.S.

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