Johnson & Johnson splits off its consumer division, which could pose risks

Johnson & Johnson announced in November that it intends secede from its consumer business November 2023 into a new public company.

Wall Street news came as no surprise.

“The analyst community has been talking for years about the division of J&J,” said Jared Holz, health equity strategist at Oppenheimer. “The time situation is critical, just because people have been very curious or interested in why now.”

Johnson & Johnson is the largest pharmaceutical company in the United States based on market capitalization. On the Fortune 500 scale of the largest U.S. corporations for 2021, she was ranked 36th in terms of total revenue. The company has had dividend growth for almost 60 years and has consistently exceeded the S&P 500 index over the past 25 years.

“The market says companies need to focus on their core competencies and allow us to diversify,” said Louise Chen, CEO at Cantor Fitzgerald. “We’ve seen several examples of a large pharmacy separating non-core assets.”

So far, the response of investors to the spinoff has been mild, with shares rising modestly amid the November news.

“There are some risks to this implementation due to the separation of consumer business,” Chen said. “I don’t think investors are yet entirely convinced of the independent earning potential of both companies.”

There are other possible headwinds for separation. The company was engaged in many legal challenges in the last few years, many of which are ongoing and could result in as yet unknown fines and settlements.

Watch the video above to find out why Johnson & Johnson are separating and what risks may arise.