Goldman Sachs Swaps Perrigo, Johnson & Johnson Ratings

The iShares Dow Jones US Healthcare (ETF) (NYSE: IYH) is up marginally year-to-date, but the profits aren’t bleeding into all health care constituents.

The Ratings

Goldman Sachs analyst Jami Rubin upgraded Johnson & Johnson (NYSE: JNJ) from Sell to Neutral and maintained a $134 price target. Rubin downgraded Perrigo Company PLC (NYSE: PRGO) from Neutral to Sell and cut the price target from $78 to $74.

The Thesis

Rubin had been bearish on Johnson & Johnson only for its valuation, which she considered unjustly high relative to peers and given its poor earnings growth. As the stock now trades comparably with the group, it’s earned an upgrade, the analyst said in a Thursday note. (See Rubin’s track record here.) 

Goldman’s steady price target reflects pharma’s outperformance as well as durability in both consumer products and medical devices and diagnostics.

Perrigo’s downgrade is similarly justified by relative peer performance, Rubin said. 

“We see no meaningful risk to numbers but expect the business to drift due to a lack of meaningful new launches in the pipeline,” the analyst said, referencing developments by Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE: TEVA) and Mylan NV (NASDAQ: MYL).

Perrigo’s stabilizing prescription business is not seen to lend meaningful upside.

“Now consumer [over-the-counter] drives 75 percent of PRGO’s operating profits, and this industry is facing headwinds that we do not expect to abate anytime soon.” 

Price Action

Perrigo was trading down 1.94 percent at $76.25 at the time of publication, while Johnson & Johnson was up 1.05 percent at $127.56. 

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