Wall Street Optimism Pushes J&J Toward $500 Billion Market Value

JNJ +0.43%

(Bloomberg) -- Johnson & Johnson reached a $500 billion stock market valuation on Wednesday as investors keep raising their bets that the firm’s strategy to cope with eroding sales for its major psoriasis drug will pan out.

Shares of the pharmaceutical and medical devices manufacturer rose 0.4% to $207.56, closing above the half-trillion dollar mark for the first time ever. The stock is on a 13-session winning streak, J&J’s longest ever, and is up 9.9% in November, putting it on pace for its best month since April 2020.

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Wall Street is becoming increasingly optimistic about the company’s plans to plug revenue holes following patent expiration for its top-selling psoriasis drug, Stelara. J&J is counting on newer medicines and acquisitions to replenish its pipelines and make up for Stelara’s decline.

“J&J is viewed as extremely solid, no major surprises, always conservative and just beating expectations,” said Bloomberg Intelligence analyst John Murphy. “In short, relatively low risk versus a number of peers.”

Earlier this year, J&J bought neuroscience drug developer Intra-Cellular Therapies Inc. for about $14.6 billion, gaining a new drug for major depressive disorder. Last week, it agreed to buy cancer treatment biotech Halda Therapeutics for more than $3 billion.

The New Brunswick, New Jersey-based firm also recently raised its sales guidance for the full year and said it will separate its slower-growing orthopedics business from the rest of the company within 18 to 24 months. The stock has soared  this year, putting it on track for its best annual performance since 1995, following back-to-back declines in 2023 and 2024.

However, Wall Street isn’t anticipating much more in the way of gains from here. The consensus estimate for J&J’s stock price over the next 12 months is about $205, which represents a slight drop from Wednesday’s close. Still, more than half of the 30 analysts tracked by Bloomberg rate the shares a buy.

“Strong execution is making the company’s underlying growth increasingly apparent,” Scotiabank analyst Louise Chen, who holds the highest price target on J&J’s shares and named it a “top pick” in a recent initiation, wrote in a note to clients on Nov. 12.

J&J’s strength is part of a rotation by investors into more defensive areas of the US equity market and away from high-priced artificial intelligence stocks. The S&P 500 Health Care Index has gained a 9.7% this month, which would be its biggest monthly gain since April 2020, while the S&P 500 Pharmaceuticals Index has rallied about 17% in November, on track for its best month ever.

“We have seen a shift over the past three and a half weeks from riskier type investments and then also from the technology areas into health care,” said Bob Lang, chief options analyst at Explosive Options. “I think it really hearkens back to investors looking for a little bit more safety in some of these health-care names.”

Much of the groups’ advance is coming from Eli Lilly & Co., which is up  this year and last week became the first pharmaceutical company to hit a $1 trillion market valuation. Merck & Co. shares are also at a record high as investors are encouraged by its recent acquisitions and clinical trial success.

(Updates with closing prices throughout, adds commentary in tenth paragraph.)

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