Johnson & Johnson Stock Just Hit an All-Time High: Here's Why It Could Go Higher

6/12/17

By Keith Speights, MotleyFool

Johnson & Johnson (NYSE:JNJ) stock first traded back in 1944. For the first 58 years of the company's existence, it was privately held by the Johnson family. J&J stock has been a big winner throughout the years, but never more so than now. Its share price hit an all-time high last week.

Can the healthcare giant keep the momentum going? Here are three reasons why Johnson & Johnson stock could go even higher.

J&J common stock and company sign

IMAGE SOURCE: JOHNSON & JOHNSON.

1. Impressive pharmaceutical pipeline

In my view, Johnson & Johnson claims one of the best drug pipelines among big pharma companies. Joaquin Duato, who heads J&J's pharmaceuticals business segment, predicts that the company will either launch or file for regulatory approval for 10 new drugs by 2021 that hold blockbuster sales potential.

Two of those drugs could win approval later this year. J&J submitted rheumatoid arthritis drug sirukumab to the U.S. Food and Drug Administration in September 2016. The company submitted psoriasis drug Tremfya to the FDA a couple of months later.

Some of Johnson & Johnson's best pipeline prospects are drugs that are already big moneymakers. The company is evaluating Darzalex, Invokana, Simponi, Stelara, and Xarelto in late-stage clinical studies for treating additional indications beyond what the drugs currently are approved to treat.

2. Actelion deal closure

I haven't exactly been a fan of Johnson & Johnson's acquisition of Actelion, because I think the price tag is too high. However, the deal is expected to close on June 16. Once it does, I wouldn't be surprised if the buyout does help Johnson & Johnson stock move higher.

Actelion made nearly $2.5 billion in revenue last year. Johnson & Johnson should report a nice year-over-year bump to its revenue beginning in the third quarter of 2017. I don't think investors will care much about the company overpaying for the Swiss drugmaker once the additional money starts flowing in.

M&A written on notepad with drawing of big fish chasing small fish

IMAGE SOURCE: GETTY IMAGES.

Over the long run, the Actelion acquisition might even prove to be a better move than I originally thought. It will give J&J a new therapeutic area, pulmonary arterial hypertension, to add to its lineup. It's also possible that J&J's global reach will help open up new markets for Actelion's drugs.

3. Improved performance from other segments

Johnson & Johnson is also seeing better performance from its consumer and medical devices business segments. Although the pharmaceuticals segment is the company's biggest source of revenue, these other two segments combined for more than half of J&J's total revenue in the first quarter.

The medical devices segment posted the highest year-over-year sales growth for the company in the first quarter. J&J's consumer business grew sales slightly more than the pharmaceuticals segment did. That's unusual -- and probably won't happen on a regular basis for too much longer.

However, a return to growth for both of these segments is good news for Johnson & Johnson. The company continues to make strategic acquisitions in both areas, which should help drive revenue higher in the years ahead.

Still some risks

Johnson & Johnson does face some risks that could derail the stock. Possibly the biggest threat is an overall market correction. Although J&J stock tends to hold up better than many during major market pullbacks, it could easily be dragged down.

The company also faces competition from biosimilars for its top-selling drug Remicade. Expect J&J to offer more discounts to boost sales for the drug while it wages a legal battle with Pfizer, which launched its Remicade biosimilar late last year.

Overall, though, I like the prospects for Johnson & Johnson, especially over the long term. I doubt the current all-time high level for the stock will go unbroken for very long.

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