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J&J gets second upgrade this week as Jefferies calls it a 'dividend machine'

Key Points
  • Jefferies upgrades J&J to buy from hold and raises its price target, calling the pharmaceutical company a "dividend machine."
  • The upgrade is the second boost this week, following Wells Fargo's report on Monday.
Scott Eells | Bloomberg | Getty Images

Johnson & Johnson got its second upgrade this week from Wall Street after Jefferies raised its rating and called the health-care company a "dividend machine."

Jefferies upgraded J&J to buy from hold on Wednesday and raised its price target, pointing to a strong, "under-modelled" pharmaceutical division that will continue to drive above-consensus revenue.

"Instead of commentators focusing on an unlikely break-up of the business, it should be appreciated for what it is — an EPS growth and dividend machine," Jefferies analyst Jeffrey Holford wrote in a note to clients. "We see multiple strong growth drivers across the Pharma business, with some of the weaker franchises also being defended by innovation."

The stock, which rose 2 percent by Wednesday afternoon after the Jefferies call, has a dividend yield of 2.5 percent. Holford believes the company will raise its payout.

Holford also raised his price target to $157 from $145, representing 17 percent upside from Tuesday's close. The stock has surged 16 percent this year.

Holford emphasized J&J's big drug sales as critical to the upgrade and saw no signs of its pharmaceutical segment slowing down. Drivers including oncology, immunology and schizophrenia medications.

"It seems very unlikely to us that the Pharma business should ever cause the overall business to decline," he said. "In 2017E we estimate that Johnsons & Johnson's Pharma division will hold 11 blockbuster products (greater than $1 billion in revenue), with 5 of these having sales of $2 billion or more."

Wells Fargo upgraded Johnson & Johnson earlier in the week, calling the third quarter a "turning point" for the stock. In that report, Wells Fargo analysts said J&J's recent acquisition of biotech company Actelion will add to the company's already-impressive drug pipeline.