When you’re one of the largest firms on the planet, it takes some serious growth to get the needle moving. Small jumps aren’t going to do it. And that’s just the problem facing healthcare giant Johnson & Johnson (NYSE:JNJ).
Thanks to its massive size, JNJ has only been experiencing about 2% growth to its EPS per quarter over the last few years. While steady growth is appreciated by some investors, that’s not that great overall and doesn’t necessarily support its constant valuation premium.
To that end, Johnson & Johnson needs to find some serious growth to keep investors coming back to its shares. And it may have just done so in its last earnings report.
Vision care is quickly becoming a major growth engine for JNJ. All in all, Johnson & Johnson’s newfound eye-care focus could be the healthcare stock’s saving grace and a major growth engine.
A Big Jump for Johnson & Johnson
By all measures, Johnson & Johnson had a pretty good quarter. The healthcare giant’s overall portfolio did well, with new drugs, medical devices and even consumer products showing steady increases in sales/profits. But some segments of JNJ’s portfolio did much better — try 34% better.
That would be Johnson and Johnson’s vision-care segment. For the quarter, eye-care products at JNJ brought in $1.12 billion last quarter. Last year at the same time, vision only made around $798 million. While that’s still small when compared to its overall portfolio and sales of new blockbuster drugs, the growth at vision is still staggering. By far, it was the biggest grower in its portfolio.
Moreover, vision care represents one of the largest untapped and ignored segments of the healthcare industry.
By Johnson & Johnson’s own data, roughly 285 million people around the world face impaired vision. Treating these people and causes of poor vision is a lucrative endeavor. The global ocular drug market is expected to grow by a CAGR of 8.4% to reach $48 billion by 2025.
And this doesn’t take into account the medical device market for contacts or eyeglasses. According to JNJ, less than 10% of the global population who could wear contacts do, with key emerging markets like China having penetration at just 7%. So, there is a lot of potential and growth ahead.
More Eye Care for JNJ Coming
To that end, Johnson & Johnson has made some great moves into the eye-health sector.
Back in 2016, it made a big $4.33-billion purchase of the Abbott Laboratories (NYSE:ABT) Medical Optics unit. That gave it access to the eye surgery space for cataracts and laser refractive procedures, as well as consumer eye products.
It then followed up that big buy with dry-eye device maker TearScience and contact subscription startup Sightbox. Just last month, JNJ paid $15 million to be a part of NeuroVision Imaging’s latest round of fundraising. The firm makes a 3D eye-imaging system.
Given the growth JNJ has experienced so far, this was the right decision. Continuing to tap the estimated $80 billion total market makes a ton of sense and will provide a much-needed shot in the arm for Johnson & Johnson’s decent — albeit slow — EPS growth. So, there’s good reason to believe that JNJ will continue to pursue eye-care initiatives and buyouts.
Even more so when you consider that the eye-care segment continues to be a fragmented industry. Most drugmakers and device makers, such as Nightstar Therapeutics PLC (NASDAQ:NITE) or Clearside Biomedical Inc (NASDAQ:CLSD), are very small.
JNJ’s size gives it a huge advantage and allows it to exploit potential synergies. When you’re already the leading producer of contacts, it makes it very easy to offer therapies/drugs for those lenses. Likewise, adding additional surgical equipment to your umbrella makes an easy bolt-on that has instant results to sales/earnings.
And given the growth potential and already-realized earnings jumps its seen, eye care becomes very exciting for Johnson & Johnson.
Seeing the Clear Vision at Johnson & Johnson
Eye care remains one of the brightest spots in the healthcare firm’s overall product portfolio. There’s plenty of growth to be had, and JNJ’s current standing makes it very easy to keep that growth going. Bolt-ons, M&A and drug development in the space should help overcome the firm’s slow pace of earnings growth.
For investors, buying Johnson & Johnson stock today makes a ton of sense. All in all, eye care should help keep its valuation growing and make the drugmaker even better.
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