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J&J: Still a Good Investment Thesis

Analysts' favorable view of Johnson & Johnson hasn't been dampened by the company's lowered full-year guidance, as it reported a better-than-expected first quarter.
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NEW YORK (TheStreet) -- Analysts' favorable view of Johnson & Johnson (JNJ) - Get Johnson & Johnson Report hasn't been dampened by the company's lowered full-year guidance, as it reported a better-than-expected first quarter.

"The stock is trading at 13 times 2010 earnings and 12 times 2011 earnings for single-digit growth, so

something has to give

," founder and portfolio manager at Trinity Asset Management Brian Gilmartin wrote on Tuesday. Gilmartin is also a contributor to


Gilmartin, who is long on J&J, added that "strong fundamental support for J&J comes from the rock-solid balance sheet and cash-flow generation."

On Tuesday, the company lowered its full-year earnings guidance to $4.80 to $4.90 a share to reflect recent changes in foreign currency exchange rates, compared with its previous guidance of $4.85 to $4.95 a share.

Jan Wald of Noble Financial Capital Markets said that J&J's bottom line and valuation are being affected by the new health care law and the effect it's having on Medicare rebates. "But investors do take these things in stride," Wald says.

"J&J is as big as the earth," Wald says, and is "prepared for the new health care environment."

Currently, the company is saving significant money in cost-cutting and restructuring plans -- about $800 to $900 million this year and $1.4 to $1.7 billion next year, according to Wald. As a result, Wald sees a far more efficient company moving forward.

On Thursday, J&J raised its

quarterly dividend rate by 10.2%

, which surprises neither J&J expert. Gilmartin had already written of J&J on


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Tuesday that "the dividend and share repurchases should continue, and J&J's cash flow should help the company with bolt-on acquisitions if it can avoid the dilution it saw in 2009." Meanwhile, Wald points out that J&J's steady dividend payout is "an important component of the investment thesis people have for Johnson & Johnson."

Johnson & Johnson stock has edged down 1.1% to $64.68 Thursday afternoon.

Excluding items, J&J for the first quarter reported net earnings of $3.6 billion, or $1.29 a share, representing increases of 3.1% and 2.4%, respectively compared to a year-ago. Sales increased by 4% to $15.6 billion.

Analysts surveyed by Thomson Reuters had expected earnings of $1.27 a share on revenue of $15.6 billion.

Consistent with the expectations Gilmarti laid out in the preview of the quarter, J&J's Medical Devices and Diagnostics division reported the best organic or operational growth at 8%, far better than Pharma's -5.7% and Consumer's "dismal" -3.7%.

Wald said Medical Devices hasn't performed this well in a number of quarters -- a result that signals a resurgence in the orthopedic and surgical markets. With the economic recovery, he sees procedural volumes picking up.

-- Reported by Andrea Tse in New York


>>J&J Ups Its Dividend

>>J&J: Something's Gotta Give

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