Is Johnson & Johnson (NYSE:JNJ) a recovery story waiting to happen, or still stuck in a rut? We'll get a closer look tomorrow, when the company releases second-quarter results. But until then, here's your sneak peek at what to expect.

What analysts say:

  • Buy, sell, or waffle? With 13 buys, three undecideds, and one analyst giving a thumbs-down, the general sentiment on Wall Street is that Johnson & Johnson shares fetch appealingly low prices right now.
  • Revenue. Analysts are looking for the top line to come in at $16 billion this quarter -- respectable 5.8% growth over the year-ago quarter.
  • Earnings. The bottom-line growth is expected to come in a little higher, at 6.7% or $1.12 per share.

What management says:
Management thinks its stock is cheap. Or so it would seem, from the more than $5 billion in stock Johnson & Johnson repurchased between August 2007 and last quarter's earnings announcement. There's almost $5 billion still available for management to play with, so it'll be interesting to see how much of it Johnson & Johnson used this past quarter, with its stock trading generally higher over the last three months.

What management does:
With a company as large as Johnson & Johnson, margins don't jump around all that much. It really takes a serious improvement in one segment to drive margins.

The one worrisome number is free cash flow, which has been headed in the wrong direction over the last two quarters. Half a year doesn't make a trend -- especially for something as choppy as free cash flow -- but it's certainly something investors should watch.

Margins

12/31/2006

4/1/2007

7/1/2007

9/30/2007

12/30/2007

3/30/2008

Gross

71.8%

71.4%

71.3%

71.1%

70.9%

71.1%

Operating

25.7%

25.6%

25.6%

25.5%

24.9%

25.3%

Net

20.7%

18.6%

18.5%

17.6%

17.3%

18.6%

FCF/Revenue

21.7%

21.6%

21.8%

21.2%

20.1%

18.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Johnson & Johnson is a survivor. It's been able to increase earnings even in the face of the problems that it and Amgen (NASDAQ:AMGN) have had with their anemia drugs, as well as continuing safety issues with drug-eluting stents. That latter market won't get any easier, either, with new competition from Medtronic (NYSE:MDT), plus Abbott Labs (NYSE:ABT) and Boston Scientific (NYSE:BSX).

While Johnson & Johnson hasn't been firing on all cylinders, other areas have seen enough growth to keep it afloat. The integration of Pfizer's (NYSE:PFE) consumer health-care division seems to be proceeding nicely, and adding over-the-counter Zyrtec to the mix has certainly helped. Anti-inflammatory Remicade saw a nice 37% increase in sales last quarter -- thanks in large part to international marketing partner Schering-Plough's (NYSE:SGP) contribution of 410% growth year over year.

If Johnson & Johnson can successfully endure a rough patch like this, just imagine how the Motley Fool Income Investor recommendation will do when things turn around.

Johnson & Johnson and Pfizer are Income Investor recommendations. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day free trial.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is also a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.