Goldman Sachs analyst Jami Rubin can be tough to please. Particularly for companies that aren't jazzed about the idea of splitting themselves into smaller pieces. Hear that, Johnson & Johnson ($JNJ)?
Just in case J&J hadn't received the message, Rubin downgraded the stock to "Sell" yesterday. As Barron's points out, a sell rating on a big-time stock like J&J--one that pays a 3.5% dividend, no less--is a rare species. But Rubin ticks off her reasons with gusto--and, perhaps to add insult to injury, said she prefers Eli Lilly & Co. ($LLY) these days.
J&J's newly launched drugs--including the clot-fighter Xarelto and the prostate-cancer pill Zytiga--face new competition, Rubin says. Its pipeline lacks "transformational ... opportunities." Its management is too focused on M&A, not enough on sharing cash with shareholders. So, even with that 3.5% dividend, J&J offers a yield of only 7%, she figures.
Pfizer ($PFE), of course, is hiving off its non-pharma businesses to focus on prescription drugs, a strategy Rubin advocated. In fact, she's now agitating for even more sales--Pfizer's consumer health or generics business, for instance. And Abbott ($ABT) plans to spin off its drug business as a separate company, AbbVie, within a couple of months.
J&J, however, seems wedded to its conglomerate tradition, and its patchwork quilt of operating units. And that's the final straw for Rubin. J&J's "focus on M&A versus cash returns to shareholders or a break-up strategy [like Pfizer's or Abbott's] puts it at a disadvantage as other companies get more aggressive," Rubin wrote in a note to investors (as quoted by The Street). The verdict? Downgrade.