Johnson & Johnson to Buy Momenta Pharmaceuticals for $6.5 Billion; Buy with Target Price $170

Johnson & Johnson, well known for consumer products like Band-Aids, said it has entered into a definitive deal to buy Momenta Pharmaceuticals, a company that discovers and develops novel therapies for immune-mediated diseases, in an all-cash transaction for about $6.5 billion.

The world’s largest and most comprehensive manufacturers of healthcare products said this acquisition provides an opportunity for the Janssen Pharmaceutical Companies of Johnson & Johnson to broaden its leadership in immune-mediated diseases and drive further growth through expansion into autoantibody-driven disease.

“Janssen will have the potential to introduce multiple launches, many as first-in-class indications with potential for significant peak year sales, some of which could exceed $1 billion,” Johnson & Johnson noted.

The deal is expected to close in the second half of 2020.

Johnson & Johnson shares gained 0.26% to $150.48 in pre-market trading on Wednesday. The stock is up about 3% so far this year.

Johnson & Johnson stock forecast

Seven analysts forecast the average price in 12 months at $166.86 with a high forecast of $175.00 and a low forecast of $158.00. The average price target represents a 11.17% increase from the last price of $150.09. All seven analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley target price is $170 with a high of $204 under a bull scenario and $110 under the worst-case scenario. Independent Research raised its rating to buy from hold; upped target price to $164 from $161.

Other equity analysts also recently updated their stock outlook. Johnson & Johnson had its target price raised by Barclays to $182 from $173. Several other equity research firms have also updated their outlook. Credit Suisse maintained a “Buy” rating and issued a $161 price target. Citigroup lifted their price target on shares of Johnson & Johnson from $150 to $165 and gave the company a “buy” rating.

We think it is good to buy at the current level and target $170 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Litigation liability has been more than reflected in Johnson & Johnson shares, in our view, creating a meaningful valuation disconnect vs. the S&P. Pharma-driven acceleration is poised to drive the multiple higher in 2020 led by blockbuster franchises, pipeline launches and easing comparables. Momentum in MD&D and Consumer segments should drive a more balanced growth profile which is less reliant on Pharma,” said David Lewis, equity analyst at Morgan Stanley.

“Our price target of $170 for Johnson & Johnson is based on a ~19.0x multiple off of our base case 2021e EPS, supported by our SOTP analysis. We assume J&J trades at an in-line multiple with S&P 500 given defensive-oriented profile, growth acceleration in Pharma, and improving fundamentals in Consumer/MD&D, balanced by litigation overhang,” he added.

Upside and Downside risks

Upside: 1) Pharmaceutical growth accelerates to the HSD sustainability. 2) Opioid and talc litigations are settled. 3) MD&D growth accelerates – highlighted by Morgan Stanley.

Downside: 1) Litigation overhang persists / legal liabilities are greater than anticipated. 2) Pharma pipeline is unable to offset biosimilar and competitive risks. 3) COVID-19 impact to MD&D is more severe. 4) Turnarounds in Consumer and MD&D fail to materialize or slower than expected.