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Johnson & Johnson (JNJ): can this stock go higher on defensive buying?


The upward move in the share price of US drugmaker Johnson & Johnson (JNJ) could end up being a blip as its primary cause was an upgrade in an analyst’s rating. Although the consensus among analysts is for a higher share price a closer look at what the individual analysts are saying is not very reassuring, as some large names seem to think that the price has gone as high as it can for the moment.

The share closed up 1.1% yesterday at $181.58 and is trading up 0.26% in the pre-market today. This is already at the target price set by Goldman Sachs in April when the bank updated its price expectation to $181 from $163 and gave the stock a neutral rating. Morgan Stanley was less optimistic and lowered its target price to $173 from $175, also with a neutral rating.

Stanford C Bernstein has lowered their rating to a market perform from outperform and set a target of $183, up from $180 previously. There are also a few more enthusiastic calls out there with Credit Suisse giving an outperform rating with a target price of $205 and Citigroup giving a buy rating with a target price of $210.

Looking at the median forecast from seven banks the stock price is expected to rise another $10 to $191.

Higher dividend payment due in June

Some of the recent positive news, the fact that the company will increase their dividend payment to 1.13 from 1.06, has already been built into the current price, as has the recent earning performance. The dividend is due to be paid out on 7 June.

In April the company reported earnings per share of $2.67, beating analysts’ expectations of EPS of $2.60. The drug maker’s revenues rose by 5% on the year in the first quarter to $23.43 billion. Over the last few years, its revenue has grown steadily in each quarter as did its net income.

Although the company was expected to play a major role in Covid vaccinations issues, the vaccine side effects have dogged its wider rollout. In early May the US Food and Drug Administration decided to limit the use of the company’s coronavirus vaccine only to US adults who are not able to receive other vaccines. It said that the company’s vaccine carried a risk of causing potentially life-threatening blood clotting. Although this side effect is fairly rare, affecting only one person in 250,000, it is much more severe than the side effects of Pfizer or Moderna’s vaccines which can cause mild heart inflammation.

This clearly didn’t come as much of a surprise for J&J because by that stage the company had already stopped Covid vaccine production at its plant in the Netherlands and had switched to an experimental but potentially more profitable vaccine against a different virus. The company still holds millions of doses of the Covid vaccine which are expected to be supplied to the African Union and to COVAX, a programme aimed at improving global access to vaccines. Ironically, the FDA’s ruling applies only to US adults and does not protect users in other countries. Their medicine regulators will have to make their own minds up on this one.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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