"Price objective basis & risk
Johnson & Johnson (JNJ)
Our $64 price objective for JNJ is based on an 13x multiple on our 2010 GAAP
EPS estimate of $4.89. Despite some near-term revenue challenges that JNJ will
face from generic competition and further pressure on consumer growth, in the
longer-term we view JNJ as a 4-6% top line growth company. While a 13x
multiple is above the current medical device and pharma group averages, in our
view JNJ merits a premium to its pharma peers given the superior top-line growth
outlook for its pharma business. On the device side, we expect medical device
multiples to expand to more normalized levels in the coming months as concerns
around healthcare reform begin to lessen. Risks to JNJ are primarily related to
the potential for lower than expected near-term revenues in pharma and
consumer due to generic competition and the economy."