No breakup for J&J? Goldman analyst says 'Sell'

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.

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