Johnson & Johnson (NYSE:JNJ) will release its quarterly report next Tuesday, and investors have been increasingly optimistic about the health-care conglomerate, bidding up its shares to new all-time highs in the past quarter. Even though the company retains a solid presence in the consumer-products and medical-device fields, Johnson & Johnson earnings growth has increasingly come to rely on the pharmaceutical segment of its business, putting it in direct competition with fellow Dow components Pfizer (NYSE:PFE) and Merck (NYSE:MRK), and exposing J&J to the risks involved in drug development.

Most investors still think of Johnson & Johnson as being primarily about its consumer products, with well-known brands like Band-Aid and Tylenol still helping it maintain its leadership position in medicine cabinets around the world. Yet, amid numerous recalls in recent years, the profit opportunity in pharmaceuticals has eclipsed the prospects for growth in J&J's other segments, leading the company to focus increasingly on drug development as the driver of future gains in revenue and profits. With Merck, Pfizer, and many other smaller players all competing against Johnson & Johnson in the pharma industry, will J&J's strategy prove to be the best one for investors? Let's take an early look at what's been happening with Johnson & Johnson during the past quarter, and what we're likely to see in its report.

Source: Johnson & Johnson.

Stats on Johnson & Johnson

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$17.95 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

What's on tap for Johnson & Johnson earnings?
In recent months, analysts have become a bit more optimistic about Johnson & Johnson earnings, raising their projections for the 2014 year by $0.03 per share. The stock has continued to climb, rising 6% since mid-October.

Johnson & Johnson's third-quarter earnings results revealed the huge competitive advantage it has over many of its peers. In recent years, Pfizer, Merck, and several other major pharma players have suffered huge declines in sales as a result of key drugs losing patent protection. By contrast, J&J has been able to boost its sales substantially, with solid successes from key drugs including Remicade, Zytiga, Xarelto, and Simponi helping to bolster overall growth. In addition, up-and-coming drugs like type-2 diabetes treatment Invokana, could become the blockbusters of tomorrow for J&J.

By contrast, some of its other divisions haven't seen the growth that investors want from Johnson & Johnson. For instance, sluggish sales at its Ortho diagnostics business led the company to pursue a buyer for the division, and just in the past day, Carlyle Group (NASDAQ:CG) stepped up with a $4.15 billion offer to buy the diagnostics business. Moreover, Johnson & Johnson is still dealing with the fallout from quality-control issues that have plagued its consumer segment, as well as medical-devices such as artificial hip implants.

In response, Johnson & Johnson has doubled down on some key treatment areas. In diabetes, the company is working on a partially automated artificial pancreas, as well as blood-glucose monitoring systems accessible via smartphone app. Also, J&J has made strides in cancer treatment with its ibrutinib drug, and in hepatitis C with its Olysio treatment. Increasingly, that's putting J&J directly up against rival offerings from Pfizer and Merck, but the company has the depth of research capabilities to hold its own, even against the largest rivals in the industry.

In the Johnson & Johnson earnings report, watch to see how the company reacts to the sale of its Ortho unit, and the extent to which it emphasizes its pharma growth. Some have called for a breakup of the health-care conglomerate, and any further concentration on drug development could renew those calls among Johnson & Johnson investors -- especially in light of the steps that Merck and Pfizer have taken in similar directions lately.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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