Strong Growth in Drug Sales Drives J&J

Damien Conover: Johnson & Johnson reported second-quarter earnings that were largely in line with both our expectations and consensus, and we continue to view the company with a strong, wide economic moat.

One of the things that's interesting about Johnson & Johnson's quarter is the very strong growth in its drug sales. Johnson & Johnson is at a great point of launching a lot of new drugs, both in immunology and oncology. That is really well positioning the overall company and really helping to offset some of the slower growth that we're seeing in the device and consumer division.

What this means on the bottom line is even stronger growth, because the drug division has higher margins. We're seeing the amplified strong growth of the drug unit being reflected in very strong earnings growth.

As we look ahead, we do expect this growth to moderate somewhat as increasing generic competition slows some of the drug growth, but overall, we think the company's very well positioned, and we continue to view the company as rated with a wide moat and valuation of $130--pretty close to where the stock is trading right now. We view the company as largely fairly valued.