Citigroup Finds Johnson & Johnson Undervalued Considering Catalysts Ahead

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Low expectations for its pharmaceutical business are making Johnson & Johnson Inc. (NYSE:JNJ) undervalued, says Citigroup’s Matthew Dodds. But this could change in the next six months when several products in the company’s pipeline either present or file phase three data, or receive regulatory approval, the analyst told clients in a note.

“JNJ has spent heavily the past 4 years building its pipeline, but sentiment remains muted given a mixed history of development,” Mr. Dodds said, adding that while most of the pharma news will come in the fourth quarter, new data on two antibiotics will be presented at ICAAC in Chicago next week.

JNJ’s pharma segment trades at nine times earnings per share, compared to 15x for its peers, Mr. Dodds noted. If the pharma group were to trade at a group multiple, he estimates it would translate into US$15 for the stock.

As a result, his buy-rated price target for JNJ shares is US$78, down from US$84 previously.

JNJ 1-yr chart: