Johnson & Johnson said on Monday June 26, it would buy Pfizer Inc.'s consumer health-care business for 16.6 billion in a nearly all-cash deal. Products including Listerine, Visine, Neosporin and Lubriderm to add to its stable of name brands such as Reach toothbrushes, Acuvue contact lenses, Band-Aids and Neutrogena. J&J also would see nonprescription Pfizer drugs such as Sudafed, Zantac and Nicorette join its Tylenol, Motrin and Monistat, nearly doubling current over-the-counter drug revenues. Pfizer had been reviewing its options for the division, which reported sales of $3.9 billion in 2005.

The acquisition will consolidate J&J's position as the world's largest supplier of consumer health-care and over-the- counter medicines.

J&J forecast the deal would boost earnings per share on a cash basis in 2009 and would produce annual cost savings by that year of up to $600 million, as it takes advantage of big opportunities to leverage the sales, administration and supply chain of both organizations.

JNJ Investment Analysis ----------------------------------

Historical view
-A+ report card for consistent earnings yr over yr.
12% earnings growth (10yrs) and 13% earnings growth (last 5 yrs)
-ROE is 24%+ every year with 13%+ profit margins.
-Raises dividends every yr.

Future view
-Analyst and I predict 10% future earnings growth for 5 yrs
-Future p/e multiple estimate of 20 ( historically ranges from about 17-28 )

Current EPS of 4.62 compounded at 10% for 5 yrs x p/e pf 20 = $116.60 stock price.
At today's closing price of $60, that's a compounded rate of return of 16.40% dividends included.

I bought it at $58.71 for my portfolio which would give me a higher margin of safety of 17.40% ROI.

Other factors to consider.
-Did JNJ overpay for Pfizer's business?
-J&J decided not to up its offer of $71 per share for Guidant, leaving Guidant with little choice but to go Boston Scientitic which in turn will have to pay the $705 million breakup fee that Guidant owes J&J.

courtesy of http://retirerichblog.com