Goldman Sachs analyst Jami Rubin upgraded her rating on Johnson & Johnson (JNJ) - Get Johnson & Johnson Report to Neutral from Sell today, saying that the company could spin off one of its businesses, creating value for shareholders.
WHAT'S NEW: Johnson & Johnson's conglomerate structure is undermining its value and the best way for the company to increase shareholder value is to adopt a "break up strategy," Rubin stated. Johnson &Johnson's consumer business could be better positioned than in the past to be spun off, since its recall issues are behind it and it no longer has to deal with the ramifications of a consent decree issued by the FDA that targeted its manufacturing operations, Rubin wrote. Additionally, the consumer unit's growth has rebounded, making it a better candidate to be spun off than in the past, she contended. The unit's comp sales are poised to grow at one of the fastest rates in the health and personal care segment, and its margins can rise significantly,the analyst believes. Moreover, separating the business would enable investors to benefit more fully from its growth, according to Rubin. J&J could also spin off its medical device business or its pharmaceutical unit, or borrow funds to repurchase shares, the analyst stated. The latter three options "may be as logical" as a spin off of the consumer business, according to Rubin, who raised her price target on the name to $112 from $102.
PRICE ACTION: In late afternoon trading, Johnson & Johnson was nearly flat at $107.81.
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