Johnson & Johnson (JNJ) would be worth more if it split into three companies than it is worth as one conglomerate, writes Goldman Sachs analyst Jami Rubin.
“There are several strategies through which we think new CEO Alex Gorsky can generate higher returns for JNJ; however, we see a break-up (into Pharma, Consumer, and Medical Devices and Diagnostics) offering the most potential for upside.”
For now this is just one analyst thinking out loud: Rubin acknowledges that “interviews with Mr. Gorsky indicate his preference for getting bigger, not smaller.”
Rubin has advocated for breakups at other companies, including Pfizer (PFE).
But Rubin thinks that the three divisions are worth $76 as standalone companies, versus J&J’s current share price of about $62.50.
“As standalone companies, these entities could be leader in their respective industries (based on sales and market share) and generate higher returns for shareholders than as parts of a conglomerate. On an operational basis, we believe that JNJ�s businesses, separated as independent companies, would benefit from being more focused and potentially achieve peer group performance levels (growth trajectory and profitability), or better. Over the past few years, JNJ�s Consumer and MD&D businesses have underperformed their peer groups (sales growth and market share), in our view due in large part to underinvestment (e.g., reduced R&D spend in MD&D) and a lack of focus on the specific needs of each business. Further the growth prospects, management philosophies and investment requirements are different for each of these companies, and, in our view, the full merits of each business are not fully understood within a conglomerate structure.”
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