Johnson & Johnson's Sales Slump Has Played Itself Out, Could Reaccelerate This Year

JPMorgan's Michael Weinstein upgraded shares of Johnson & Johnson JNJ from Neutral to Overweight with a price target boosted from $133 to $140 despite underperformance over the past year.

According to Weinstein, shares of JNJ have underperformed the past 12 months and showed investors decelerating top-line growth in 2017 due to heightened competition in the pharmaceutical unit. But the analyst believes the deceleration story has "effectively played out" as the deceleration seen in the first quarter will have "played itself out" after the second quarter.

Growth Months Away

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Weinstein estimated that the Pharma's revenue growth will re-accelerate from 2.0 percent organic in the first half of 2017 to 5–6 percent in the bottom half of 2017 only to improve next year to 6–7 percent in 2018. The analyst added that his estimates would place Johnson & Johnson's growth in the pharma unit in 2018 at 2x its pharma peers at 3.2 percent. This will help the company's overall top-line growth to accelerate from 1.5 to 2.0 percent organic in the first half of 2017 to 4.0–4.5 percent in the bottom half of 2017 and 4.5–5.0 percent in 2018.

If the analyst's thesis plays out then JNJ's bottom line will accelerate from 3 to 4 percent growth in the first half of 2017 to 8–9 percent in the bottom half of 2017 and 2018.

Bottom line, While Weinstein acknowledged his upgrade to Overweight is a "notably contrarian call" there are also multiple catalysts for the Pharma business — "almost none of which" are reflected in the Street's estimates today.