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After a Banner Year, Johnson & Johnson Could Rise Further -- Barrons.com from Barron's via Dow Jones Johnson & Johnson shares have had a blockbuster year, as concerns about the company's big rheumatoid-arthritis drug Remicade proved too pessimistic. While gains might not be as strong over the next year, shares could rise almost 20% as investors view the company's drug pipeline in a new light. Shares of Johnson & Johnson (ticker: JNJ), recently $139, are up 21% this year, ahead of the Standard & Poor's 500 index's 18% rise and the mid-$130s target we set late last year ("J&J Deserves More Respect From Wall Street," Dec. 10). At the time, investors feared that competition would cut Remicade's market share and worried there wasn't enough in the pipeline to offset it. Remicade not only held up better than expected, but J&J's pipeline has delivered, too, and several major drugs have strong growth ahead. At 17.8 times next years' earnings, the stock is pricier than a year ago, but still underestimates the pipeline, says Micky Jagirdar, an analyst at Ariel Global, which owns shares. For example, a recent study suggests that clot-prevention drug Xarelto might have a safety advantage over rivals, and strong clinical-test data might expand use of multiple-myeloma treatment Darzalex to more patients. While the drug business will continue to be the major catalyst for the stock, J&J's medical-device business, which accounts for 34% of sales, should also help. Analysts expect J&J to exit some slower-growing areas, as it is doing in neurosurgery, and improve operations in other areas. J&J also can tap its $16 billion in cash for acquisitions in faster-growing markets. Management expects medical devices and the consumer business -- home to brands like Aveeno, Neutrogena, and Band-Aid, which contribute almost 20% to sales -- to see a pickup in growth next year as execution improves and new products launch, says Leerink Partners analyst Danielle Antalffy in a research note. J&J should return to mid-single digit revenue growth, writes Antalffy, who has a 12-month stock-price target of $165, almost 20% higher. Earnings next year are expected to increase 8%, to $7.87 a share, and revenue to rise 6%. J&J's diverse mix of businesses has made it a favored haven during periods of volatility. And that makes the stock all the more appealing amid global political uncertainty. Also: Johnson & Johnson is cheaper and growing faster than many other defensive options. by -- Reshma Kapadia |
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