As Goldman Sachs analyst Jami Rubin sees it, there's another major drugmaker whose whole is worth less than the sum of its parts. This time, it's Johnson & Johnson ($JNJ)--and Rubin figures it would be worth more split three ways.
Rubin, you'll remember, is the analyst who championed Pfizer's slim-down-via-split-off plan. Now that Pfizer ($PFE) is well on its way down that road, she's leveling a similar challenge to J&J and its recently minted chief executive. "There are several strategies through which we think new CEO Alex Gorsky can generate higher returns for J&J," Rubin wrote in an investor note. "[H]owever, we see a break-up (into Pharma, Consumer, and Medical Devices and Diagnostics) offering the most potential for upside."
In a recent interview with Bloomberg, Gorsky pooh-poohed the very idea. J&J has been a conglomerate for decades, and prides itself on the independence of its operating companies. Gorsky's more interested in buying companies, not selling or splitting.
But with consumer operations at McNeil suffering from ongoing manufacturing problems, the devices business facing thousands of lawsuits in the wake of joint-replacement recalls and the pharma business still in the throes of negotiating a $1 billion-plus settlement with the Justice Department, perhaps a little focus might be in order.
To Rubin, J&J's various businesses suffer from the company's diversification. Both devices and consumer healthcare have underperformed their industry peers in recent years, she says. "On an operational basis, we believe that JNJ's businesses, separated as independent companies, would benefit from being more focused," Rubin wrote, going on to say, "[T]he 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."
Rubin figures the three divisions would be worth a total of $76 per share as standalone companies, Barron's reports. J&J's current share price is $62.50.
- see the Barron's post