This health-care giant has 'unlocked potential' after a recent spinoff, RBC says
Johnson & Johnson is a buy after the company's consumer business spinoff earlier this year, according to RBC Capital Markets. The firm initiated Johnson & Johnson with an outperform rating and $178 price target, which suggests shares can climb about 14.5% from Wednesday's close. The company spun off its consumer health business Kenvue earlier this year. This separation has "unlocked potential" for Johnson & Johnson going forward, analyst Shagun Singh said. "JNJ's value-accretive consumer separation: (1) positions it uniquely as the only global healthcare company with Pharma and MedTech under a single portfolio, allowing for exclusive focus on innovation and enhanced productivity; (2) positions it for higher revenue and margins; and (3) leaves room to monetize its retained 9.5% stake in the consumer asset," he added. Singh also said the company's pharma franchise is poised to deliver competitive growth and its medtech division is on pace to achieve "top-tier growth and profitability." Its pharmaceutical sales are aided by its pipeline that includes five therapies worth more than $5 billion in revenue potential and 12 therapies with more than $1 billion potential. The medtech division — which provides devices for surgeries, orthopedics and vision — had jumped in the second quarter as demand rebounded for nonurgent surgeries among older adults after the Covid-19 pandemic. This division has a "clear winning strategy" in gaining sales from growing markets and focusing on innovative products in areas such as surgical and orthopedic robotics and heart failure. The analyst added that Johnson & Johnson is trading below its historical multiples despite its improved financial profile since its Kenvue spinoff and the company has potential upside from further M & A activity. — CNBC's Michael Bloom contributed to this report.