Fundamental Investor Analysis of J&J

I have been a big fan of Johnson & Johnson (J&J, or on the stock ticker, JNJ) for many years, even during the recent talcum powder contamination issue (which may be in-part a supplier problem). In this blog piece I wanted to explore the company from the perspective of a long-term investor (the JNJ stock price over time is given below). Therefore, let's look at the vision, mission, and goals of J&J, and follow this up with a 'triple bottom line' assessment of this multinational healthcare company.

JNJ stock price over time

Industry & Background:

J&J is involved primarily in consumer healthcare, medical technology, and pharmaceuticals. The company, headquartered in New Jersey, was founded in 1886, and has grown to be one of the largest multinational groups in its industry sectors, constantly being ranked as a company whose stock is one to buy and hold forever (Rego, 2018). Some of their most well-known products include the Band-Aid line of bandages, Tylenol, J&J baby powder (currently in a state of controversy due to various law-suits; Brueck, 2019), and Neutrogena skincare products.

J&J have recently faced backlash over reports and lawsuits alleging the company's talcum powder products had been contaminated with asbestos, which some plaintiff's have blamed for their cancers. However, there may be evidentiary issues around the current court cases.

Vision:

Vision can be summed up as what an organization hopes to become in the future (Ketchen & Short, 2012). J&J states its company vision as: ‘Be yourself, change the world; Our vision at Johnson & Johnson, is for every person to use their unique experiences and backgrounds, together – to spark solutions that create a better, healthier world’ (JnJ, n.d.). From this, one can ascertain that J&J wants to take a holistic team-centric approach to solving the problems and adding customer-based value in their industry.

Mission:

The mission statement of a company should outline why the company in question exists, that is, through the answering of the question ‘who are we?’ (Ketchen & Short, 2012). J&J states that their mission is to: ‘Make diversity & inclusion how we work every day; Our mission is to make diversity & inclusion our way of doing business. We will advance our culture of belonging where openness and minds combine to unleash the potential of the brilliant mix of people in every corner of Johnson & Johnson’ (JnJ, n.d.). Here it can be argued that J&J sees their raison d’etre as to conduct business in an inclusionary fashion. Whilst this may come across as vague and not specifically addressing why they exist in their industry sector, it is pleasant corporate-speak that also aligns well with their vision; something many companies often fail at (Ketchen & Short, 2012).

Goals:

Goals are defined as the narrower aims that a company pursues in order to realize their vision and mission (Ketchen & Short, 2012). Ideally, goals should be organized around being fundamentally smart, measurable, aggressive, realistic, and time-bound; otherwise known as SMART (Ketchen & Short, 2012). As J&J is an enormous multinational company whose business operations span various sectors, they have a variety of goals rather then an individual set that one may find at a smaller business. This includes their Sustainable Development Goals 2030, their Global Citizenship and Sustainability Goals (set every 5 years), Health for Humanity 2020 Goals, and the UN Global Compact. Here we shall focus on their Health for Humanity 2020 Goals given that we are already well into 2019. The Health for Humanity 2020 Goals were launched in 2016, and focused 16 individual goals around the following areas: ‘providing better access to healthcare worldwide, making the places we live and work in healthier, and teaming up with partners to achieve these commitments’ (Kelly, 2017).

SMART Assessment:

As mentioned, the vision and mission of J&J are in good alignment. But how well do their Health for Humanity goals work towards achieving their vision and mission aspirations? Well let’s first look at how well their stated goals fit into a SMART framework, then we can assess if they make sense with respect to their overarching vision and mission statements.

As stated, there are 16 individual goals that comprise the Health for Humanity 2020 goals, so for the sake of brevity, let us consider one of them; ‘Deliver innovative healthcare access and training programs that impact a billion lives in underserved areas’ (JnJ, 2016). Within this goal (and giving consideration to the S, or Specific, in SMART), J&J specifically stated that they would ‘Produce and donate 1 billion doses of VERMOX (mebendazole) to treat >100 million children per year at risk for intestinal worms’; this is a clear metric to judge success by (JnJ, 2016). And indeed it has been measurable (M in SMART): in 2018 the World Health Organization confirmed that J&J have shipped over 1 billion doses of mebendazole to countries in need (WHO, 2018). The amount of doses donated thus far is (I would argue) definitely an aggressive tactic (the A in SMART). This is because J&J needed to shunt a significant part of their drug production facilities to achieve the shipping of 1 billion drug doses, and to work with regulators and authorities to ensure the drugs get to where they were needed. Not an impossible goal (therefore fulfilling the R in SMART), but certainly a challenging one. However, I would argue that the innate good that results from this tactic, that is the tackling of helminthic parasitic infections in the most disadvantaged communities, would act as a large motivator for the J&J workforce. Personally, I would feel immensely proud to be associated with such a philanthropic company who is making real-world reductions in suffering. I am not alone in this, as the data clearly shows workers are more inspired when working for companies that engage in corporate charity, which positively contributes to company culture (Beckstrand, 2018). J&J put a time-bound (the T in SMART) limit on when their mebendazole initiative should be achieved by (2020), and by all accounts, they have achieved this goal early (WHO, 2018).

Ascaris lumbricoides parasites are susceptible to Mebendazole, which is fortunate since up to 1 billion people globally are infected by this parasite.

With the SMART assessment in mind, how well then has J&J’s Health for Humanity goals aligned with their vision and mission statements? On the whole, it would fit quite well, since J&J utilized a variety of their staff’s expertise in carrying out the Health for Humanity goals, which fundamentally improved the lives of millions, again fitting in well with their stated vision. However, I would say that their mission statement could be significantly improved by a firmer focus on healthcare, though without losing their positive pro-diversity message. I would re-word this as such: ‘To ensure our diverse team has all the tools and support they need to bring about fundamental positive change in the global healthcare landscape. Our business is the business of people, and we shall advance our culture of belonging where openness and minds combine to unleash our potential’.

Triple Bottom Line Assessment & Conclusions:

The triple bottom line includes people, planet, and profits (Ketchen & Short, 2012). This means that business can be assessed by how socially responsible they are, their levels of environmental sustainability, and the levels of profit they make. As should be clear from the SMART assessment, J&J is enormously socially conscious and are actually delivering positive change in the world. Their vision also outlines how they want to create a healthier world, and have even launched a new sustainability tool to help them assess their environmental impact (CA, 2017). In addition to this tool being able to help their environmental impact on the planet, it is designed to increase profits by eliminating wastage. Whilst a company may not pursue corporate social responsibility for selfless reasons, we should be happy when the outcomes benefit the world and place positive social pressures on other companies to follow suit (Boer & Haleem, 2014). Thus, in the case of J&J, any investor should be proud to be a part of this company. Though it should be clear that this article should not be taken as investment advice, and other tools are worthwhile employing when analyzing a company, including other fundamental analyses like Porter's 5 forces, and quantitative methods such as a discounted cash flow approach.

References:

Beckstrand, G. (2018). Corporate Charity Is What Inspires Greater Employee Engagement. Entrepreneur. Retrieved from https://www.entrepreneur.com/article/306225

Boer, H & Haleem, F. (2014). Environmental and social pressure as drivers of corporate social responsibility in a globalizing world. Conference: 21st International EurOMA Conference on Operations Management in an Innovation Economy, Palermo, Italy.

Brueck, H. (2019). Johnson & Johnson is being investigated by the SEC over fears its baby powder may cause cancer — here's how worried you should be. Business Insider. Retrieved from https://www.businessinsider.com/does-baby-powder-cause-cancer-johnson-and-johnson-lawsuit-2018-7?r=US&IR=T

CA. (2017). Johnson & Johnson introduces new sustainability tool for healthcare. Climate Action. Retrieved from www.climateaction.org/news/johnson-johnson-introduces-new-sustainability-tool-for-healthcare

JnJ. (2016). Health for Humanity 2020 Goals; Toward a Healthier 2020. Johnson & Johnson. Retrieved from https://www.jnj.com/_document/johnson-johnson-health-for-humanity-2020-goals?id=0000015c-adde-d4cb-a5fd-efdef8110000

JnJ. (n.d.). Vision Mission. Johnson & Johnson. Retrieved from https://www.jnj.com/_document?id=00000159-6a3b-d7d5-abdd-ea3f92360000

Kelly, A. (2017). How Johnson & Johnson's Health for Humanity 2020 Goals Can Help Improve the Well-Being of the World. Johnson & Johnson: Latest News. Retrieved from https://www.jnj.com/latest-news/johnson-and-johnson-health-for-humanity-2020-goals

Ketchen, D & Short, J. (2012) Strategic Management: Evaluation and Execution. Chapter 2.

Rego, M. (2018). The 3 Best Stocks to Buy and Hold (Forever). Investopedia. Retrieved from https://www.investopedia.com/articles/markets/121515/3-best-stocks-buy-and-hold-and-never-let-go-wmt-jnj-aapl.asp

WHO. (2018). Paediatric chewable medicine promises improved treatment against intestinal worms. World Health Organization: Neglected tropical diseases. Retrieved from https://www.who.int/neglected_diseases/news/Paediatric-chewable-medicine-promises-improved-treatment_against/en/