Why Johnson & Johnson Stock Popped on Friday

Johnson & Johnson (NYSE: JNJ) stock jumped 3.4% through 12:20 p.m. ET Friday after Guggenheim analyst Vamil Divan raised his price target on the already buy-rated stock to $270 per share.

Johnson & Johnson stock closed below $245 yesterday, suggesting Divan sees potential for the biopharmaceutical company to gain another 10.2% over the next 12 months. Add a 2.2% dividend yield, and that's a respectable 12.4% potential profit in a year.

Why Guggenheim loves Johnson & Johnson stock

Divan updated his numbers ahead of JNJ's Q2 earnings release due July 15. Going over the numbers, he predicts modest top- and bottom-line "beats" for the company, with revenue coming in around $25.5 billion and profits of perhaps $2.87 per share.

On guidance, Divan advises investors to focus on two key areas for JNJ: immunology and oncology. On the former, Tremfya, Caplyta, and Erleada prescriptions are doing better than expected, and he's thinking this trend could continue, especially for Tremfya (an anti-inflammatory).

In oncology, the names to watch are Darzalex, Carvykti, Tecvayli, and Talvey, as well as the more recently launched Inlexzo and SQ Rybrevant (for bladder cancer and non-small cell lung cancer, respectively). Johnson & Johnson's strong drug portfolio leads Divan to call it his "Top Pick" in large-cap biopharma.

How risky is Johnson & Johnson stock?

Despite a modest price target and strong drug prospects, though, and I'm not sure I agree on that -- because of the valuation. JNJ stock trades at more than 28 times earnings, but most analysts forecast only a single-digit earnings growth rate over the next five years.

Strong free cash flow might help to change my mind, but in fact, JNJ's free cash flow looks relatively weak at only about 85% of reported earnings.

I don't see Johnson & Johnson stock as much of a bargain.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.