J&J looks to bolster cardiology devices segment

Growth in the segment has stunted over the past few years, prompting the new CEO to look at acquisitions.

By Trefis May 16, 2012 10:19AM
TrefisIt was not long ago that Johnson & Johnson (JNJ) bought orthopedic manufacturer Synthes. Now, the pharmaceutical giant is looking at more such acquisitions, especially for its cardiology devices business that has taken a beating over the past few years.

J&J operates in three important segments: consumer, pharmaceuticals, and diagnostics. It competes with Pfizer (PFE), Merck (MRK) and Abbott Labs (ABT).

We maintain a $72.45 price estimate for JNJ, which is nearly 10% above the current market price, largely based on our long-term outlook for the company.

JNJ Market Share of Vision Care, Diabetes and Other Medical Devices

According to our estimates, J&J's market share in stents, catheters and other medical devices will stagnate over our forecast period. This is largely due to discouraging results from its cardiovascular devices segment in the past five years.


However, newly appointed CEO Alex Gorsky is looking at acquisitions to reinvigorate the segment with products such as heart valves. The possible takeover targets are Edwards Lifesciences (EW) and St. Jude Medical (STJ), according to Bloomberg.


Edwards Lifesciences holds half of the heart valves market, while St. Jude enjoys the highest operating margins in the industry. Some of J&J's products have performed miserably in terms of quality. Several over-the-counter products of the company were recalled because of foul odors and adulterated ingredients.


We expect these acquisitions will help J&J gain market share in cardiology devices. Stents, catheters and other medical devices account for 18% of Trefis price estimate for JNJ stock, by our analysis.


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