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Highlights
- Johnson & Johnson (NYSE:JNJ) announced to split into two companies within two years.
- One will focus on drugs and medical devices, the other will focus on consumer products.
- The company's sales surged 10.7% YoY to US$23.3 billion in the third quarter of FY21.
Healthcare company Johnson & Johnson (NYSE:JNJ) announced on Friday to split the business into two companies in the next two years, triggering a flurry of speculation in the market.
The stock jumped more than 2% in the premarket trading after the news.
The New Brunswick, New Jersey-based business conglomerate said one of the companies would deal with drugs and medical instruments, while the other would focus on consumer products.
Eyeing for J & J stock? Know why J&J is splitting into 2 companies
J&J manufactures various healthcare products and currently manages its operations through three segments: Consumer, Medical Devices, and Pharmaceutical.
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On Friday, the Band-aid, Tylenol, and baby products manufacturer said the decision was taken to keep up with the rapid changes in the healthcare industry.
Johnson & Johnson’s consumer unit has recently been hit by a barrage of lawsuits over its products, including baby powder, linking it to ovarian cancers in some users.
However, the company CEO, Alex Gorsky, stressed the lawsuits have no role in the split.
J&J’s pharmaceutical division has been the strongest performer so far.
In 2020, the drug segment accounted for 55% of its total sales, while the medical instrument and consumer arms contributed 28% and 17% of the total sales, respectively. In addition, the company generated total revenue of US$83 billion last year.
Experts now expect its net sales to be more than US$90 billion in 2021.
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Split Options
The company is currently considering options for the split.
Johnson & Johnson’s Chief Financial Officer Joseph Wolk said the company is looking for a split option either through "spin or an IPO split," although talks are still in the “early stages.” Wolk added that the company would consider the market conditions before coming to a decision.
Meanwhile, Johnson & Johnson did not provide any financial details for the split but said the transaction would be tax-free. However, the company expects dividends payments to continue at the current level. Wolk said the traders might receive new shares of the consumer firm or might trade stocks of the new health company.
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J&J stock performance and company financials
The JNJ stock traded at US$167.70, up 2.85%, at 9:21 am ET on Nov 12, from their previous closing price. The stock value increased by 4.19% YTD.
J&J's market cap is US$429.27 billion, with a P/E ratio and forward P/E one-year of 24.37 and 16.67, respectively. Its EPS is US$6.69, and its share volume on Nov 11 was 4,118,791. The 52-week highest and lowest stock prices were US$179.92 and US$142.86, respectively.
In the third quarter of fiscal 2021, the company's total sales jumped 10.7% YoY to US$23.3 billion, while its net earnings came in at US$3.66 billion, representing an increase of 3.2% from the same quarter of the previous year.
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Bottomline
Although J&J's consumer segment represented a small fraction of its total revenue, it achieved immense brand recognition. Its split decision comes just days after General Electric announced a similar move to break itself into three public companies, suggesting that they are open to breaking themselves into smaller entities to cope with the rapidly changing business environment and consumer choices.
