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The Ratings Game

Analysts reward J&J outlook with upgrades

NEW YORK (MarketWatch) -- A trio of analysts on Wednesday upgraded Johnson &Johnson shares and cited enthusiasm for quicker than expected profits from the healthcare firm's just-approved buyout of Swiss device maker Synthes.

Johnson & Johnson(JNJ) shares rose 1.5% in Wednesday trading, following on their after market gains Tuesday. On Tuesday the company revealed that it received U.S. regulatory clearance to buy Synthes. It expects to close the $19.7 billion transaction by June 14.

More importantly, the personal care products maker said it expects the Synthes cash-and-stock deal -- the largest in the company's history -- to boost 2012 earnings by 3 to 5 cents a share, and 2013 earnings by an estimated 10 cents to 15 cents a share. When it was first announced, J&J originally forecast that the acquisition will hurt earnings by 22 cents a share, based on 2010 financial information.

J.P. Morgan upgraded the shares to overweight from neutral and lifted its price to $74 from $69, citing optimism over the company's pipeline of generic drug brands and a new CEO, Alex Gorsky. The investment bank recently met with Gorsky, who has been in the role for six weeks, and said the new chief was "passionate about J&J and committed to better quality".

Raymond James analysts upgraded the Johnson & Johnson to outperform from market perform, and said that it expects the Synthes acquisition to generate high single-digit revenue and EPS growth in 2013. It set a price target of $72.

Meanwhile, Jefferies said in a research note that "the improved economics of the transaction and demand for the shares likely to be caused by the accelerated share repurchase should allow sentiment to turn the corner". It upgraded the company to buy from hold, and revised its price target to $72 from $68.

All three firms agree that J&J shares have underperformed in recent years faced with product recalls and increased industry competition.