Johnson & Johnson spin-off could pose some risks

Read Time:1 Minute, 24 Second


Johnson & Johnson announced in November that it plans to spin off its consumer business into a new public company by November 2023.

The news did not surprise Wall Street.

“The analyst community has been talking about breaking up J&J for years,” said Jared Holz, health care equity strategist at Oppenheimer. “The timing is critical, just because people are very curious or curious about what’s going on right now.”

Johnson & Johnson is the largest U.S. pharmaceutical company by market capitalization. It ranks 36th on the 2021 Fortune 500 list of the largest U.S. companies based on total revenue. The company has experienced dividend growth for nearly 60 years and has consistently outperformed the S&P 500 for the past 25 years.

“The market is saying that companies should focus on their core competencies and let us diversify,” said Louise Chen, managing director of Cantor Fitzgerald. “We’ve seen several examples of Big Pharma separating non-core assets.”

Investor reactions to the split have been muted so far, with the stock only marginally higher on the November news.

“Separated from the consumer business, there are some risks in this execution,” Chen said. “I don’t think investors are fully convinced of the standalone earnings potential of either company.”

There are other potential downsides to the split. Over the past few years, the company has been dealing with numerous legal challenges, many of which are still ongoing and could lead to unknown fines and settlements.

Watch the video above to learn why Johnson & Johnson is breaking up and the risks it could face.


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