Analysts Stand By Johnson & Johnson Despite Earnings Pullback

Johnson & Johnson JNJ is on the up after a post-earnings plunge earlier this week. The firm marginally beat guidance in the fourth quarter but issued lower-than-expected guidance. Still, it’s retained the confidence of some Street experts.

The Rating

Raymond James analyst Jayson Bedford maintained an Outperform on the stock but cut his price target from $149 to $145.

Morgan Stanley analyst David Lewis maintained an Equal Weight rating and raised his price target from $130 to $134.

Immediate Prospects

A myopic look at Johnson & Johnson warrants skepticism about its prospects. The company suffers forex headwinds, continued overhang from the talc lawsuit, and biosimilar and generic competition driving revenue growth deceleration.

“However, this is factored into current sentiment,” Bedford assured in a Wednesday note. “We see potential upside to management’s initial 2019 guidance and believe the balance sheet still holds some optionality, which keeps us constructive on the name.”

Organic Growth

Low organic growth projections also discouraged both analysts, although Bedford predicted upside to the pharma and consumer businesses.

“We also note that J&J started 2018 with organic growth guidance of 2.5-3.5 percent and ended up growing ~5.5 percent, organically,” Bedford wrote. “There is a recent track record of under-promising/over-delivering.”

Lewis also suspects conservative guidance for organic growth and anticipates strength specifically in the consumer and MD&D lines.

“In Consumer, we see our estimate of 3.5 percent as achievable as J&J grew 3.2 percent in 2018 and initiatives including the Baby relaunch and new Beauty and Oral Care products are expected to maintain momentum,” he wrote.

Pharma Declines

Given $1.6 billion in net divestitures and heightened competition in pharma, Bedford reduced his overall and segmented forecasts for organic growth acceleration.

Again, Lewis presumes conservative guidance for pharma — an important metric highly-correlated with the stock price.

“Clearly this is a year with outsized headwinds and less indicative of the company's underlying Pharma fundamentals (Darzalex, Imbruvica, & Stelara) and pipeline (Tremfya and Erleada), but it does raise a question we posed in our Diversity is a Three-Way Street note about how overexposure to Pharma may be weighing on the company's multiple and stock performance,” he wrote.

Price Action

At time of publication, shares traded up marginally at $129.25.

Related Links:

Jury Upholds $4.69B Verdict In Johnson & Johnson Baby Powder Case

Johnson & Johnson CEO Tells Cramer 'Thousands Of Studies' Refute Asbestos Allegations

Photo credit: Raysonho @ Open Grid Scheduler via Wikimedia Commons