Market Insider

What Goosed J&J Ahead of Pharma Pack

Seema Mody

Johnson & Johnson was one of the few Dow components to rise Wednesday, boosted by three analyst upgrades and the closure of its $19.7 billion acquisitionof medical-device maker Synthes, The stock also vastly outperformed the rest of the large-cap pharma sector.

J&J also orchestrated a creative way to buy back its own stock.

Its wholly-owned Irish subsidiary, Janssen Pharmaceutical, entered into an accelerated share repurchase agreement with Goldman Sachs and JPMorgan Chase, to purchase a total of 203.7 million shares of J&J common stock for $12.9 billion.

After holding a "neutral" rating on J&J for three-and-a-half years, analysts at JPMorgan upgraded the drug giant to "overweight," citing that J&J is a defensive mega-cap in a difficult market, it has an attractive dividend yield of roughly 4 percent, and promising assets in its pipeline including an experimental Alzheimer’s drug, bapineuzamab, in development.

JPMorgan also points out that shares of J&J are trading at a four-percent discount to its major pharmaceutical peers, perhaps signaling a good buy opportunity. During a time when investors are looking for return, J&J's fat dividend yield is quite attractive (currently at 3.9 percent), which is its highest level since July of 1984.

While analysts at Goldman said a breakup of J&J might generate higher returns, JPMorgan does not think this is possible. JP Morgan writes that following recent meetings with the J&J management team, a breakup of the company doesn’t seem to be in the cards.

Johnson & Johnson was also upgraded by Raymond James to "outperform" from "market perform," and at Jefferies to "buy" from "hold."

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