U.S. markets close in 3 hours 28 minutes
  • S&P 500

    4,589.93
    +57.17 (+1.26%)
     
  • Dow 30

    35,393.70
    +365.05 (+1.04%)
     
  • Nasdaq

    14,589.98
    +249.72 (+1.74%)
     
  • Russell 2000

    2,095.59
    +32.80 (+1.59%)
     
  • Crude Oil

    87.05
    +0.09 (+0.10%)
     
  • Gold

    1,843.20
    0.00 (0.00%)
     
  • Silver

    24.69
    +0.46 (+1.91%)
     
  • EUR/USD

    1.1335
    -0.0012 (-0.10%)
     
  • 10-Yr Bond

    1.8340
    +0.0070 (+0.38%)
     
  • GBP/USD

    1.3640
    +0.0028 (+0.21%)
     
  • USD/JPY

    114.1200
    -0.2330 (-0.20%)
     
  • BTC-USD

    43,224.74
    +982.24 (+2.33%)
     
  • CMC Crypto 200

    1,026.88
    +31.62 (+3.18%)
     
  • FTSE 100

    7,585.01
    -4.65 (-0.06%)
     
  • Nikkei 225

    27,772.93
    +305.70 (+1.11%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

The Johnson & Johnson split ‘makes sense’ as it moves into ‘more innovative products’: Analyst

In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Yahoo Finance's Karina Mitchell speaks with Edward Jones Senior Analyst Ashtyn Evans on how Johnson & Johnson is splitting its businesses.

Video Transcript

ASHTYNE EVANS: I think a lot of that comes from just the history of success we have seen with spinoffs of non-pharma businesses, the Abbvie and Abbott-- Abbott and AbbVie split, Pfizer spinning off their animal health and Lilly spinning off their animal health. So I think J&J is seeing that opportunity to unlock some value for shareholders by spinning off this strong consumer business. The talc lawsuits, you know, I think are maybe a part of it, but I don't think it's the driving story behind this split. They've made a lot of progress in resolving the talc lawsuits and with the potential to possibly resolve them before the split even takes place.

KARINA MITCHELL: Yeah, well, the company CEO says that business customers-- you know, the markets have diverged, customers' interests have diverged so much from what's going on in the markets. And that is why they are deciding now to do this. But it begs the next big question, is that how many more will the-- you know, will sort of take this route as well, just after GE did it, Toshiba did it. Do we see more of this coming?

ASHTYNE EVANS: We have seen a lot of this in healthcare over the last several years. There have been a significant number of spin-offs so I do think it's been an ongoing trend in healthcare for some time, companies becoming more focused on their growth areas and spinning off other areas that are potentially less innovative or need more concentration and investment separately. So, yes, I do think we'll see this continue.

ZACK GUZMAN: Ashtyne, it's Zack here. I mean, when we're looking at what investors can kind of expect to see from something like this, I mean, obviously, you know, each time you see one of these deals, it sounds like management there is waiting to see how the market's going to react-- so far, positively. I mean, what are you expecting to see in terms of whether or not this is going to be the IPO route they want to do this with, kind of the spin-off tactics you expect them to take, and the timeline here? It's not like it's happening overnight. You still got to wait-- what, we're talking 18 to 24 months, so a long time.

ASHTYNE EVANS: Yeah, historically, the healthcare spinoffs, what at least the recent spinoffs have done is spinning off the company into a separate publicly traded company, and you're giving it to shareholders in a tax-free manner. So if you're a holder of Johnson & Johnson, you know, more than likely, you will automatically get shares of this new company. But that's not always the case. And they haven't provided all of those details. But that kind of is what Eli Lilly did with Elanco and we saw with the Abbott, AbbVie spin. But again, more details to come. They'll kind of consider what the most favorable option would be.

But, you know, from a shareholder perspective, we do think it has the potential to unlock value. If you spin off this consumer business as a separate company, all of a sudden, you know, there's a greater focus on investment in that area, margin expansion, and growth. The consumer business over the last five years has grown on average under 2%. I believe it's around 1.75% on average over the last five years, so really focusing on investing in that business in the right way and creating value that way.

KARINA MITCHELL: So we look at some of the numbers, right? So GE was 36% in debt, whereas we look at J&J, 7% in debt. So it's AAA. It's a really strong company. People have, you know, a strong feeling about it. They're behind it. How-- so when we talk about your assessment of this, is it's not to do with litigation to move away from this talc lawsuit, but more to move into technology and more to sort of get into mRNA type vaccines and things like this. How much more of an investment do they need to make? And then how does this streamline and how does it help add value to the particular sectors that they need to address?

ASHTYNE EVANS: Yeah, so it-- you know, again, it's only-- the consumer business is only about 11% of total company earnings. So they're still largely a pharma and medical device company, even with the consumer business. But spinning off the consumer, that is not growing as fast as the pharma business.

You know, overall, earnings will likely grow more in the new J&J post the consumer separation than they are now, just because now, consumer won't be there, and that's lower growth. And so the pharma business will make up about 75% of earnings. And that's their highest growing business and their most profitable business. So continuing to invest in innovation, both on the medical device side and the pharma side, should accelerate the growth of J&J's earnings.

KARINA MITCHELL: All right, well, we will have to leave it there. Ashtyne Evans, Edward Jones Healthcare Securities Research senior analyst, thank you so much for your time.