Bank Of America Reports Higher Numbers For Johnson And Johnson

According to Bank Of America, Johnson & Johnson JNJ has under performed the S&P since the beginning of 2010, but yesterday's (19th April) Q1 earnings report suggests a growth inflection point for JNJ (off a low base), which should end JNJ's weak relative stock performance. Bank Of America reported that there appears to be enough momentum in pharma, enough stability in devices and easy enough comps in consumer to suggest top line acceleration and gross margin upside throughout 2011 even with upcoming generic competition. “As you can see in this report, applying a BMY multiple to JNJ's pharma business in our SOTP valuation yields a PO close to $66, but given our sense that JNJ will soon put its balance sheet to work in a way that could add $0.20-$0.30 to earnings, we justify a slightly higher P/E multiple on current earnings. As such, we are raising our JNJ PO to $67 from $65 and making minor adjustments to our estimates. The pharma business appears to be turning at JNJ, and that along with higher numbers should drive a higher stock price, but valuation limits upside potential to less than 10% in our view as a premium multiple to BMY for JNJ's pharma business seems unlikely and the device and consumer divisions do not deserve a premium in our view.” Johnson & Johnson closed yesterday at $62.69.