Johnson & Johnson (NYSE: JNJ) is splitting up into two separate publicly traded companies, one focused on pharmaceutical and medical devices and the other on consumer products.
Which of the two will attract more investors?
According to Oppenheimer’s Jared Holz, once the split-up is complete, which is expected to take up to 24 months, the legacy Johnson & Johnson business will be more “palatable” for investors. On CNBC’s “Squawk on the Street”, he said:
The consumer business has been very challenging for many reasons, the most predominant being the baby powder, considering the litigation and the liabilities associated with the talc situation. Once that’s separated, the legacy business will be more ownable; that’s what investors will gravitate more towards.
Holz agreed that the announcement wasn’t surprising since a split of J&J was anticipated for a while, but said the timing, with CEO Alex Gorsky set to step down at the start of the next year, was a bit unexpected.
Holz’ remarks on the price action
Shares of Johnson & Johnson are up more than 2.0% on Friday – a rather muted response to news of such gravity, which the Oppenheimer expert says could be because the legacy business will trade at a lower multiple after the split-up than the stock’s current multiple.
The removal of the talc noise from the base business is fairly valuable. So, from a multiple standpoint, you’ll have a company that’ll rely on what the pharma business does. The multiple or the value of the stock will just depend on how the company builds from here.
All in all, Holz says the split-up is good news for both segments as a focused approach would translate into better efficiency and open new avenues for innovation.
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