JNJ Preview: Looking Down the Pipeline

Even a stable store of value -- a "defensive" stock like Johnson & Johnson (JNJ - commentary - Cramer's Take) -- can rally hard in this bounce-back rally. JNJ is up 9.5% today on the eve of its quarterly earnings report. Under most circumstances, investors could feel confident that the report is going to be good, but in this environment, who knows? Analysts are looking for $1.11 of EPS on $15.7 billion of sales. Analysts never had doubts -- the estimates have been rising steadily all autumn.

On the call, investors are going to focus on the earnings impact from generic competition in the near term, but the progress on the pipeline, which promises resurgent earnings a couple years out, will be scrutinized for longer-term trends. Risperdal is off-patent now, so even surging sales of Topamax and stability in Eprex/Procrit and Aciphex are unlikely to result in pharma sales growth.

Investors will look forward to progress reports on upcoming drugs for blood clots, psoriasis and arthritis. In devices, procedures were holding up, helping sales at Ethicon, Endo-surgery and Harmonic; Cypher on the other hand is declining, putting a drag on growth. The Consumer division should remain slow and steady, as Zyrtec drives OTC product growth.

Analysts will wonder whether the recession will drive consumers to off-brand products, but J&J isn't yet seeing this.

The call starts at 8:00 a.m. EDT/5:00 a.m. PDT

No positions.

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At the time of publication, Dvorchak had no positions in the stocks mentioned, although positions can change at any time.

Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.