Johnson & Johnson: The Goldman Downgrade Is Wrong, Buy The Dips

| About: Johnson & (JNJ)
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It is always a wonderful "jolt" to wake up to another Goldman Sachs (NYSE:GS) downgrade of a dividend winning stock like Johnson & Johnson (NYSE:JNJ).

The absurdity of this sell recommendation is glaringly obvious when we just take a look at the price target that Goldman has set; $72.00/share. Last time I checked JNJ was selling for about $69 per share. So the price target is around 5% higher than the current price. Sell? Why? Here is the Seeking Alpha "market current" less than an hour ago;

"7:47 AM Johnson & Johnson (JNJ) is cut to Sell with $72 price target at Goldman, which projects just 7% upside for the stock vs. double that for the rest of the pharmaceutical group (see Eli Lilly upgrade). "We see JNJ as lacking transformational pipeline opportunities." Shares -1.2% premarket."

Now let's see if I understand this: GS has a $72.00 price target AND says it sees "only" 7% upside for I guess the next year. So to me that means another $5.00/share on top of the $72.00 price which might being the stock to around $77.00/share by the end of 2013? Now GS has a sell recommendation and the premarket has seen the share price dip to $68.50 or so per share.

Have they already ignored the dividend winning history of JNJ? How about the capital appreciation? Revenue growth? Earnings history? It sure seems like they have when we look at this amazing chart:

Earnings recently have taken a hit, but this company has such an extraordinary global footprint, that by tomorrow they can turn that around.

Personally I believe they will. On the other hand, maybe Goldman should work on their own business performance. Take a look at their chart:

How does this chart look to you? To me it looks like GS has been underperforming.

JNJ Fast Facts

How many years in a row has JNJ raised dividends?

50 years in a row.

How many years in a row has the company increased revenues?

45 years in a row and a dip 2 years ago, but now back on track.

How big is the company now?

Over $192 billion enterprise value with a forward P/E of just over 12, and nearly $17 billion in cash.

To review:

  • An enterprise value of nearly $190 billion.
  • Operating margins over 25%.
  • $17 billion of total cash on hand.
  • A "comfortable" dividend payout ratio of 74%.
  • A dividend winner for 50 consecutive years of increasing dividend amounts, as well as an continual payments without missing any.

Headwinds JNJ Currently faces

The most obvious is the failed drug for Alzheimer's patients that JNJ teamed up with Pfizer (NYSE:PFE) on, as noted in my previous article;

"Last quarter, JNJ dipped in revenues for YOY by a tad under 1% and earnings were squeezed by about 49%. The bearish argument is in those two numbers, as well as the recent abandoning of FDA approval for its new Alzheimer's drug as well as having a "tarnished" brand."

The fact that Eli Lilly (NYSE:LLY) has had some good news one drug, has precipitated Goldman to raise their recommendation on that stock to neutral;

"7:41 AM On the back of positive results for its Alzheimer's treatment, Eli Lilly (LLY) is upgraded to Neutral with $54 price target from Sell and $42 at Goldman. "Our skepticism was proven wrong." Shares +1% premarket."

Fair enough, but does one drug make for an assumption that JNJ should be sold? I do not believe so.

I respectfully disagree with Goldman on this call, and I think anyone looking to buy JNJ might find a better entry point because of their recommendation.

I am buying the dips and adding to the core folks, what are YOU doing?

Disclosure: I am long JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.