Just like investors, well diversified companies like General Electric (NYSE:GE), Berkshire Hathaway (NYSE:BRK-A), and Johnson & Johnson (NYSE:JNJ) can take a hit in one area and keep on ticking.

While Johnson & Johnson's anemia drug and drug eluting stent haven't been performing up to par, the rest of its franchise has been making up the difference and then some. Fortunately for Johnson & Johnson, it's also in an industry where consumers aren't likely to cut back, and that bodes well for its upcoming earnings release after the sun rises tomorrow.

What analysts say:

  • Buy, sell, or waffle? With a strong 2:1 favor -- 12 buys and 6 holds -- analysts think Johnson & Johnson is a steal at these levels.
  • Revenue. Analysts are looking for $15.7 billion in revenue this quarter, up just 5%, but in this market, any growth is good growth.
  • Earnings. The bottom line is expected to expand a lot faster, with 25% year-over-year growth expected to result in $1.12 per share this quarter.

What management says:
Management's goal is to return value to shareholders in the form of dividends and share repurchases. So far so good with an ever increasing dividend resulting in a yield of over 3% and stock repurchase of $6.6 billion since August of last year. The stock was mostly up in the last quarter, so hopefully management didn't spend much of the $3.4 billion it has left in authorized repurchases, instead buying them in the last week or two at fire sale prices.

What management does:
Margins are holding pretty steady, and while we'd like to see them improving, it takes a lot to move a tank with the inertia that Johnson & Johnson has in it.

The one concern is falling free cash flow relative to revenue. While free cash flow can change quarter to quarter for a variety of reasons, we'd like to see that number getting pushed back up. Cash is king after all.

Margins

4/1/2007

7/1/2007

9/30/2007

12/30/2007

3/30/2008

6/29/2008

Gross

71.4%

71.3%

71.1%

70.9%

71.1%

71.1%

Operating

25.6%

25.6%

25.5%

24.9%

25.3%

25.4%

Net

18.6%

18.5%

17.6%

17.3%

18.6%

18.6%

FCF/Revenue

21.6%

21.8%

21.2%

20.1%

18.8%

18.1%

Source: Capital IQ, a division of Standard & Poor's. Data is for the four quarters ending on the indicated dates.

Double digit growth (or pretty close to it) -- quarter after quarter, year after year -- what more could an investor ask for in the revenue department?

Growth (YOY)

4/1/2007

7/1/2007

9/30/2007

12/30/2007

3/30/2008

6/29/2008

Revenue

9.3%

11.4%

12.6%

14.6%

12.4%

11.3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data is for the four quarters ending on the indicated dates.

One Fool says:
The biggest questions for Johnson & Johnson this quarter are how much more market share will the company's drug-eluting stent lose now that it's got competition from both Medtronic (NYSE:MDT) and Abbott Labs (NYSE:ABT), and whether it can slow the loss of sales of its anemia drug Procrit. It'll also be dealing with the loss of exclusivity of its antipsychotic Risperdal as Teva Pharmaceuticals (NASDAQ:TEVA) launched its generic version of the drug. But this last challenge is to be expected, and there's not much the company can do about it.

While I expect there will be substantial damage done, especially to its drug-eluting stent, Johnson & Johnson still has a lot of things going for it. Its consumer healthcare division has been on fire since picking up Pfizer's (NYSE:PFE) over-the-counter division at the end of 2006, and medical devices, sans the aforementioned stent, have also been performing well. Its diversity should more than make up for lagging divisions, helping to propel another strong quarter for the health-care giant.