Why Johnson & Johnson Rallied Today

Key Points

• Johnson & Johnson delivered a "beat and raise" quarter.

• Results were bolstered by the new acquisition of Intra-Cellular, marking J&J's re-entry into the neuroscience field.

• The stock is still not expensive even after today's surge.

• 10 stocks we like better than Johnson & Johnson ›

Shares of Johnson & Johnson (NYSE: JNJ) rallied 6.1% on Wednesday as of 1:18 p.m. ET.

The pharmaceutical and medical equipment giant reported earnings today, which not only beat expectations, but also saw management lifting full-year guidance. As such, the stock continued to brush off tariff-related fears from the first half of the year.

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Second-quarter highlights include lower-than-expected tariffs and contributions from Caplyta

In the second quarter, Johnson & Johnson grew revenue 5.8% to $23.7 billion, beating expectations. While adjusted (non-GAAP) earnings per share of $2.77 declined by 1.8% relative to the prior year, that was also ahead of analysts' expectations.

The decline in earnings had to do with Johnson & Johnson's cost of goods sold, which included some acquisition-related amortization stemming from the company's $14.6 billion acquisition of neuroscience-oriented Intra-Cellular Therapies, which closed on April 2. Interest expense also increased from new debt used for the acquisition. Management also noted that it expects a $200 million impact from tariffs this year, though that was down from $400 million in April before U.S.-China tariffs were ratcheted back down on May 12.

Still, Intra-Cellular helped the company's Neuroscience unit grow 14.4% year over year in constant currency, which was the second-fastest segment behind oncology, which grew a solid 22.3%.

Management also upped its guidance for the year and now projects $93.2 billion to $93.6 billion in revenue, and $10.80 to $10.90 in adjusted earnings per share (EPS), relative to last quarter's guidance of $91 billion to $91.8 billion and $10.50 to $10.70, respectively.

Image source: Getty Images.

JNJ remains as blue chip as ever

Johnson & Johnson's solid results cement it as the premier blue chip pharmaceutical and medtech company in dividend-oriented portfolios. Moreover, the stock is still inexpensive, even after today, at just 15 times this year's new earnings guidance, with a dividend of 3.4%.

Thus, the stock remains a solid buy or hold for income-oriented, conservative investors.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.