Industry Profile

• Pharmaceutical companies produce the drugs that save lives, and prevent illness as the population ages

• Large Cap pharmaceuticals are paying big dividends• Lots of cash available• Large job growth expected• “Employment growth is expected to account for about 3

million new wage and salary jobs”• “7 of the 20 fastest growing occupations are health care

related” (Bureau of Labor Statistics)• “The Gross Domestic Product (GDP) for health services in

2001 was $589.8 billion, a 5.8% share of the national total. (Source: U.S. Bureau of Economic Analysis)”

• Work is steady due to small seasonal variation of consumer needs

Company Background

• Johnson & Johnson (NYSE: JNJ) is a global American pharmaceutical, medical devices and consumer packaged goods manufacturer founded in 1886. – Its common stock is a component of the Dow Jones

Industrial Average and the company is listed among the Fortune 500.

• The corporation includes some 250 subsidiary companies with operations in over 57 countries. Its products are sold in over 175 countries. – J&J had worldwide pharmaceutical sales of $24.6

billion for the full-year 2008.

• Johnson & Johnson is known for its corporate reputation– Top of Harris Interactive’s National Corporate Reputation Survey– World's most respected company by Barron's Magazine– First corporation awarded the Benjamin Franklin Award for Public

Diplomacy by the U.S. State Department– Third among the United States' largest companies in Newsweek's

"Green Rankings"

• Johnson & Johnson's Brands– Numerous household medication & first aid supplies.– Band-Aid brand line of bandages.– Tylenol medications.– Johnson & Johnson baby products.– Neutrogena skin and beauty products.– Clean & Clear facial wash.– Acuvue contact lenses.

A Little Bit More About

Statement of Cash Flows

Balance

Sheet

Analysis of Key Ratios

Company JNJ PFE GSK ABT MRK Industry

Market Cap (Billions) 166.86 117.23 104.6 79.15 69.38

Sales (Billions) 61.37 46.17 41.91 29.66 23.26

Key Ratios *10/15/09

P/E 13.31 7.9 14.15 15.33 12.19 3.27

PEG 1.58 21.15 1.89 1.4 2.15

P/S 2.72 2.54 2.5 2.67 2.98 0.48

P/B 3.61 1.86 8.44 3.98 3.42 1.58

P/C 11.34 2.32 11.09 11.49 4.1

P/FCF 23.83 13.7 26.86 23.97 20.86

Quick Ratio 1.51 2.55 1.26 1.34 2.35 2.73

Current ratio 1.78 2.74 1.69 1.63 2.54 3.20

Debt/Eq 0.29 0.63 1.9 0.79 0.53 14.51

Ratio Valuation

PEG average (USA) not including PFE 2.012857

JNJ PEG 1.58

JNJ price 60.95

JNJ P/E 13.31

JNJ eps 4.58

JNJ growth per share 8.42

P/E average (USA) not including PFE 14.68857

P/B Average (USA) not including PFE 4.3025

JNJ Book Value per share 14.17442

JNJ sales per share 22.40809

P/S average (USA) not including PFE 2.5725

P/C average (USA) not including PFE 8.73

JNJ CF per share 5.37478

JNJ FCF per share 2.56

P/FCF average (USA) not including PFE 22.38833

PEG Valuation 77.51

P/E Valuation 67.28

P/B Valuation 60.93

P/S Valuation 57.59

P/C Valuation 46.92

P/FCF Valuation 57.31

Stock Price

JNJ vs. S&P 500 & Industry

STRENGTHS

• Diversity of business segments

• Forecasted growth• Sales and marketing

abilities• Strong financial

position

WEAKNESSES

• Reliance on small molecule drugs

• Fewer contributions from in-house R&D

SWOT Analysis

OPPORTUNITIES

• Exploit overlaps between different company divisions

• Expand work with biologics

THREATS

• Failure of new product launches

• Early launch of generic drug concerto

SWOT Analysis

Reasons to Buy

• Consistently increased dividend for the past 47 years• Beaten the 3 major indices over the past 10 years• Well diversified• You won’t get rich off of it, however it should beat the market