Can Johnson & Johnson (JNJ) Hold Its Momentum? – Pfizer Inc. (PFE), Covidien plc (COV)

Nevertheless, Johnson & Johnson (NYSE:JNJ) managed to grow operating earnings 8% as reported. Likewise, fourth-quarter net income arrived at $2.6 billion, or $0.91 per share. While earnings arrived significantly above the $218 million J&J earned last year, as noted, the Q4 2012 results included a $3 billion charge. However, when removing special items fourth-quarter earnings arrived at $1.19 per share — topping Street estimates of $1.17.

Opportunities for improvement
As noted above, margins are still a glaring issue. Granted, the impact from the Synthes deal helped the device business. But are there more catalysts from this point forward? And I don’t think macro-related concerns are still valid if J&J underperforms — at least not when compared to Covidien plc (NYSE:COV), which seems to outperform J&J in areas like surgical.

However, it’s not all bad. Johnson & Johnson (NYSE:JNJ) is well-diversified and continues to perform well in drugs. The company’s drug Remicade impressively accounts for more than 10% of the company’s revenue. What’s more, its new cancer drug, Zytiga, which posted 74% revenue growth in the fourth quarter, continues to gain incredible traction — outselling Remicade by $13 million.

However, as my Foolish colleague Maxx Chatsko pointed out, Zytiga also has to deal with plenty of competition from the likes of Medivation, which has an oral medication drug of its own. Nevertheless, I do expect drugs to continue to be J&J’s biggest driver in 2013 and beyond. And based on management’s improved guidance, the company feels that way as well.

What of the stock?
As noted above, while J&J is resting near 52-week highs, the recent run in the shares have taken its P/E to above 20, where it is now trading higher than Pfizer Inc. (NYSE:PFE)’s P/E of 14. This may signal that investors believe Johnson & Johnson (NYSE:JNJ) will continue to outperform its peers for the next several quarters. But this is by no means a flawless company; if management can get margins going again, while improving the medical devices business, I don’t see any reasons why J&J can’t continue to rise. But those are two big “if”s.

The article Can Johnson & Johnson Hold Its Momentum? originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Covidien and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

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