J&J Moves Up as Analyst Raises Pharma Estimate

Shares of Johnson & Johnson moved higher Tuesday after an RBC Capital Markets analyst upgraded the stock, saying he expects strong sales of the company’s newest drugs.

THE SPARK: Analyst Glenn Novarro raised his rating to “Outperform” from “Sector Perform” and his price target to $104 per share from $88. He said Johnson & Johnson should get above-average revenue growth from its pharmaceutical business, and raised his estimates for that business. Novarro said that the company’s new type 2 diabetes drug, Invokana, is off to a strong start, and that at its peak, it should bring in more than $2 billion in annual sales.

The analyst said two other recent products – its anticlotting drug, Xarelto; and prostate cancer treatment, Zytiga – also did better than expected as they reached the market. Johnson & Johnson launched both drugs in 2011.

Novarro said Johnson & Johnson should also report stronger profit margins over the next three years, because spending on drug launches will decrease, and so will spending related to the series of recalls that hurt the company’s consumer products business.

THE BIG PICTURE: Johnson & Johnson makes everything from drugs for cancer to nonprescription items like Tylenol and Motrin to dental, wound and skin-care products and orthopedic items. In the third quarter, the New Brunswick, N.J., company reported rising prescription-drug sales, and said its consumer health unit is continuing to recover.

In the third quarter, pharmaceutical revenue grew 10 percent to $7.04 billion, on rising sales of Xarelto, Zytiga and other products like its immune disorder drug Simponi, psoriasis treatment Stelara and schizophrenia drug Invega Sustenna. Its total revenue grew 3 percent to $17.58 billion.

The Food and Drug Administration approved Invokana in March, and European Union regulators followed suit in November.

SHARE ACTION: Shares of Johnson & Johnson rose $1.96, or 2.12 percent, to close at $94.29.