Market Overview

Johnson & Johnson Downgraded On Hefty Valuation Compared To Peers

Johnson & Johnson Downgraded On Hefty Valuation Compared To Peers
Related JNJ
ASH 2017 Highlights: Gilead, Novartis, Juno, Bluebird Bio And More
A Trendy New ETF From Pacer
Automatic Data Processing: Great Total Return And Recent Dividend Hike For Income - And The Price Is Right (Seeking Alpha)

Analysts at Goldman Sachs turned bearish on industry giant Johnson & Johnson (NYSE: JNJ) amid valuation concerns. Analyst Jami Rubin downgraded J&J's stock from Neutral to Sell with a price target boosted from $125 to $130, which implies downside from Wednesday's open of $133.25.

The decision to turn negative on J&J's stock is largely based on relative value, the analyst explained. Specifically, the company has been one of the largest beneficiaries of an ongoing rotation into defensive categories like the broader healthcare sector. Since July of 2015, shares gained 37 which marks outperformance versus the S&P 500 index (up 21 percent), the healthcare ETF, Health Care SPDR (ETF) (NYSE: XLV) (up 9 percent), and other large-cap pharma stocks that are higher on average by 6 percent.

As such, there's a risk that investors will be rotating into other pharmaceutical stocks, especially those that boast a more attractive product cycle, Rubin suggested. As for J&J, the company has a lack of optionality for value creation versus its peers, especially in terms of high value pipeline assets, transformative M&A and operating leverage.

Investors may be better off buying shares of AbbVie Inc (NYSE: ABBV), Bristol-Myers Squibb Co (NYSE: BMY) and/or Eli Lilly and Co (NYSE: LLY), the analyst suggested. These three companies are attractive for their "more identifiable, needle moving catalysts."

Bottom line, J&J's below-average, long-term growth outlook implies that its valuation today is "stretched."

Related Links:

Your Easy Guide To Credit Suisse's New Top Stocks List

Johnson & Johnson Management Meetings Leave UBS Reiterating Stock As A Top Pick

Latest Ratings for JNJ

Oct 2017CitigroupMaintainsBuy
Oct 2017Credit SuisseMaintainsOutperform
Oct 2017BarclaysMaintainsEqual-Weight

View More Analyst Ratings for JNJ
View the Latest Analyst Ratings

Posted-In: healthcare Healthcare ETF Jami Rubin PharmaceuticalAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga


Related Articles (BMY + ABBV)

View Comments and Join the Discussion!