Can Earnings Push Johnson & Johnson to New Heights?

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Johnson & Johnson is scheduled to release its quarterly earnings report tomorrow, and as a huge health-care conglomerate with a strong presence in consumer health-care products, medical devices, and pharmaceuticals, the company has drawn investors' interest throughout 2013, gaining about 30% year to date. Even as its competitors -- including some of its compatriots among the Dow Jones Industrials -- have looked to break themselves into smaller parts, J&J has thus far held itself together as a giant in the industry.

As J&J's share price has risen, though, so too have concerns that the company's stock may be getting ahead of its fundamental growth prospects. With economic challenges facing the company throughout the world, can it produce enough earnings growth to make investors happy? Let's take an early look at what's been happening with Johnson & Johnson over the past quarter and what we're likely to see in its quarterly report.

Stats on Johnson & Johnson

Analyst EPS Estimate

$1.39

Change From Year-Ago EPS

6.9%

Revenue Estimate

$17.71 billion

Change From Year-Ago Revenue

7.5%

Earnings Beats in Past 4 Quarters

4


Source: Yahoo! Finance.

How can Johnson & Johnson make its earnings grow faster?
Analysts have grown somewhat more optimistic about Johnson & Johnson's earnings prospects in recent months, keeping their quarterly estimates stable but adding a penny per share to their full-year 2013 estimates and $0.02 per share to next year's earnings consensus. The stock has continued its run, rising more than 10% since early April.

J&J has plenty of things going for it to justify shareholders' enthusiasm about the stock. The company has strong brands across its three major segments, and it's one of few companies that have maintained a triple-"A" bond rating.

In particular, J&J's pharmaceuticals division has shown a lot of potential lately. The pharma giant had its Invokana treatment for type 2 diabetes approved in late March, and J&J hopes it will be able to knock Merck's Januvia off its pedestal in the diabetes space. Studies showed Invokana to be superior to Januvia, and if current long-term safety trials confirm the drug's safety and effectiveness, then it could seriously diminish Januvia's blockbuster-sales status. When you add Invokana to other drugs approved in the past few years, including the promising TNF-alpha inhibitor Simponi and prostate cancer drug Zytiga, J&J has the potential to lift the success of its newer drugs immensely in the next year.

Yet J&J isn't satisfied with what it already has. Last week, the company joined with Pharmacyclics to seek approval for their lymphoma drug ibrutinib. J&J will get a 50% share of any profit from the venture, and J&J cited a Piper Jaffray estimate that just one of its indications could produce sales of more than $4 billion.

Still, J&J faces plenty of competition. In addition to obvious players in the pharma and medical-device space, conglomerate 3M has also sought to use its reputation for innovation to come up with advances in the health-care space. Yet even though 3M generates plenty of revenue from its products, which include everything from pathogen testing and health-information management systems to adhesive surgical tape, J&J has done a good job of holding back the potential rival by serving the widest variety of health-care needs.

When Johnson & Johnson announces its earnings, watch closely for signs of how the company's consumer segment is doing. With pharma being somewhat more volatile in terms of approvals and rejections that can have a big immediate impact on results, J&J must solidify its hold on its bread-and-butter consumer-products sales. Taking that business for granted would be a big mistake for J&J.

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The article Can Earnings Push Johnson & Johnson to New Heights? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends 3M and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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