The market was obviously disappointed by Johnson & Johnson's (NYSE:JNJ) most recent earnings announcement, as the shares dropped about 2% on the news. This is a strange reaction in my view, especially in light of the fact that revenues were up modestly and net income was up dramatically. This is an example of what happens when the market expects X and a company delivers slightly less than X. The shares are sent lower, in spite of innately positive results. This interplay between expectations and results generally impact investors in high-priced (overpriced?) names, but it can obviously impact companies that trade at a discount to the market, too.
In this article I want to talk briefly about why I am bullish on the company by reviewing the long-term financial health, identify some key risks, and attempt to model the future dividend by imposing "steady as she goes," "slight cut" and "severe cut" assumptions on the future dividend. Even under the most severe assumptions, the shares should still be reasonably higher by 2020.
