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Johnson & Johnson leads the Dow higher after JPMorgan upgrades stock

  • JPMorgan upgraded Johnson & Johnson to overweight from neutral and hiked its price target to $140 from $133, representing 13 percent potential upside.
  • Analyst Michael Weinstein said he expects organic sales growth in the firm's pharma division to "re-accelerate."
  • "We recognize that this is a notably contrarian call today. J&J is coming off a disappointing first quarter, and the second quarter is going to be just as challenging," Weinstein said.
Biopharmaceutical
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Johnson & Johnson contributed the most to gains for the Dow Jones industrial average on Monday after analysts at JPMorgan upgraded the stock on expectations of stronger growth in its pharmaceuticals division.

JPMorgan upgraded Johnson & Johnson's stock to overweight from neutral and hiked its price target to $140 from $133, representing a 13.2 percent potential upside from Friday's close of $123.64.

Analyst Michael Weinstein said he expects organic sales growth in the firm's pharma division to "re-accelerate" from 2 percent in the first half of this year to a range of 5-6 percent in the second half. He added that JPMorgan sees organic growth to range between 6 and 7 percent in 2018.

"This should put J&J's pharma growth in 2018 at 2x its pharma peers (3.2%) and enable J&J's overall top-line to accelerate from 1.5-2.0% organic in 1H17 [first-half 2017] to 4.0-4.5% in 2H17 and 4.5-5.0% in 2018," Weinstein said in a note Monday.

"We recognize that this is a notably contrarian call today. J&J is coming off a disappointing first quarter, and the second quarter is going to be just as challenging, owing to $340M in 2Q16 gross-to-net adjustments that make for a particularly tough comp," Weinstein added.

Johnson & Johnson reported mixed first-quarter results on April 19, as earnings per share topped analyst expectations while revenue missed.

"But, ... once J&J gets the second quarter behind it, comps ease considerably, new products should get approved, and clinical trial read-outs become potential catalysts for an improving Pharma business and a reacceleration in top-line growth."