Johnson & Johnson's M&A Strategy Is the Real Story for Investors

Core Insights - Johnson & Johnson is pursuing a disciplined acquisition strategy aimed at long-term growth and innovation, rather than short-term stock price increases [1][2] - The company is actively reshaping its portfolio by divesting slower-growth assets to focus on higher-growth opportunities [2][4] Acquisition Strategy - The spinoff of Kenvue and the planned separation of the Orthopedics business, projected to generate approximately $9.2 billion in sales in 2024, are key steps in this strategy [3][4] - Johnson & Johnson's financial health is strong, with approximately $14 billion in free cash flow generated in the first three quarters of 2025, providing capital for acquisitions [4] Recent Acquisitions - Recent acquisitions in MedTech and Innovative Medicine have shown positive results, contributing to immediate growth and validating the company's capital deployment strategy [6][13] - The acquisition of Intra-Cellular Therapies, which brought in the drug CAPLYTA, has already generated $240 million in sales in the third quarter, highlighting the effectiveness of the M&A strategy [13] M&A Methodology - Johnson & Johnson employs a "partner, validate, acquire" approach, which reduces investment risk by confirming an asset's clinical potential before full acquisition [10][11] - The potential acquisition of Protagonist Therapeutics is a case study of this disciplined M&A playbook, focusing on a clinically validated asset [8][9] Financial Performance - The Cardiovascular unit has seen an impressive 11.6% operational growth in the third quarter of 2025, attributed to successful acquisitions [13] - The company's dividend yield stands at 2.69%, with a history of 64 consecutive years of dividend increases, supported by strong cash flows from integrated acquisitions [15][17] Future Outlook - Management has indicated that they do not require large M&A to meet growth targets, reinforcing confidence in the current pipeline and strategy [16] - Analysts maintain a moderate buy rating for Johnson & Johnson, with a 12-month stock price forecast of $199.59, indicating a potential upside of 3.27% [8]