Goldman to Gorsky: Think small

Johnson & Johnson (NYSE:JNJ) may be worth more in pieces than it is as a whole, at least according to analysts at Goldman Sachs.

Goldman published a research report suggesting that the health care giant split into separate medical device, drug and consumer goods divisions.

"There are several strategies through which we think new CEO Alex Gorsky can generate higher returns for JNJ; however, we see a break-up (into Pharma, Consumer, and MD&D) offering the most potential for upside," Goldman analysts wrote. "As a standalone company, each business could be a leader (based on sales and market share) in its respective industry and, we believe, generate higher returns than JNJ does as a conglomerate."

J&J hasn’t hinted at any breakup plans. Earlier this month new CEO Alex Gorsky announced intentions to expand the company’s already huge footprint in medical devices.

Saying there’s value in being a diversified conglomerate, Gorsky said that he has no plans to emulate rival Abbott (NYSE:ABT), which is in the process of carving out its research pharmaceuticals business into a separate firm called AbbVie. The focus at J&J under his watch will be on growth, especially in emerging markets like China, he said.

"We acknowledge that JNJ’s management team has given no indication of following this strategy, and interviews with Mr. Gorsky indicate his preference for getting bigger, not smaller," Goldman analysts added. "However, in our view, evidence is building across healthcare that smaller, more focused companies can perform better than their diversified peers, with ABT, COV, and PFE being the most recent examples of companies that have divested businesses and shown enhanced returns (both operational and stock price) vs. peers."

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