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Drug Division Drives Johnson & Johnson

We are increasing our fair value estimate after better that expected earnings but see the stock as fairly valued today.


Damien Conover: Johnson & Johnson reported first-quarter earnings that slightly exceeded our expectations. We're really driven by strong top-line growth from its immunology franchise and its oncology drug franchise. These are two areas where the company's done a lot of innovative development with drugs, and these drugs continue to help unmet medical need, which really enables Johnson & Johnson to have strong pricing power.

Beyond the drug division, the consumer division and medical device division continue to post modest gains that should support continued long-term growth for Johnson & Johnson. Based on the strong results today, we have increased our fair value by close to 5%, and we anticipate the stock will continue to do well; however the stock is trading pretty close to our fair value. We do think it's a very strongly positioned firm, and we do have it as a wide economic moat firm, really supported by the drugs in its drug division that have patent protection that enable it to get these strong returns on invested capital. 

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.