Drug Division Drives Johnson & Johnson

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.

When thinking about the other divisions, brand power can also be really important in the consumer division. In time, we expect the medical device division and the consumer division to do better, boasted by better capital campaigns in getting the branded group to get more entrenched with the consumers, particularly in the baby care division, which had some pressure this quarter. Looking ahead in the device division, some new products in eye care look very well positioned to continue to support robust growth within the eye care division.

Looking forward we really expect the drug division to continue to drive the majority of the growth for J & J, and its pipeline is well positioned to continue to offset some of the generic threats that it is facing.