Johnson & Johnson (NYSE: JNJ) was downgraded by JP Morgan from Overweight to Neutral. While Michael Weinstein, the JP Morgan analyst, makes a good case, I can't help but questioning the call, having been such a big fan of the company for so long.J&J has been one of the best performers this past difficult year. While the S&P 500 declined 36% year-to-date, and the Dow Jones Industrial Average (of which J&J is a component) declined nearly 32% YTD, JNJ declined only 8% YTD. Over the past year, JNJ's performance is even more remarkable, with a 5.6% decline compared with the S&P's 39% and the Dow's 34.6%.
J&J has been hailed as a defensive stock -- "a super stock. Well managed, great earnings, good pipeline," the world's most respected company, "a drug company and so much more." And these are just from BloggingStocks contributors. So what's this analyst's beef?
Well, it seems that J&J now trades at a 27% premium to its rivals when comparing business to business. This premium, he says is in contrast to the 1% discount to its sum of the parts it has averaged the past 20 years and has been an indicator to sell the stock in the past.
Specifically, J&J now trades at a 64% premium to its pharma rivals, much higher than it has at any time the past 20 years. And it is also in the pharma business that he sees short-term problems, as two of its best selling drugs are going off-patent in 2009. Still, the analyst thinks that long-term the pharma division should do well, as it has a strong pipeline.
JNJ stock is down over 4% by midday trading. No doubt, some may see this as a buying opportunity.
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Reader Comments (Page 1 of 1)
10-29-2008 @ 3:07PM
Beltway Greg said...
Morgan also gave Apple a 12 month target price of $105 last week; it exceeded it today. Analysts have been so wrong for so long that they'll be lowballing from here to eternity.
Beltway Greg
10-29-2008 @ 3:32PM
Sheldon L said...
The downgrade may be warranted in some respects but many things about this company stand out.
They should be more valuable than other Pharma's because they are half pharma and half consumer product like Procter & Gamble. This makes JNJ earnings and cash flow more stable.
What is management worth. JNJ was just voted the best managed company in the world by its peers as published in Barron's.
JNJ has paid a dividend almost forever and it is one of the more reliable returns you can count on in this low interest rate environment.
JNJ is Triple A rated -- also not weighed by JPM.
JNJ is much less volatile in these troubled times and so is not a favorite of short sellers, and day traders.
I would encourage investors to take advantage of the JPM downgrade and maybe a real buying opportunity will arrise in the mid to low 50's. If this happens you will be able to pick up a great stock at discount to the market and JPM's projections.
Then after you buy it JPM will upgrade it in a latent fashion as most calls made by analysts occur.