Johnson & Johnson (JNJ – Free Analyst Report), the world's largest and most broadly-based healthcare company, posted share earnings of $1.23 in the second quarter. This matched our estimate and was 7% above last year's figure of $1.15.

However, due to recalls of products with the TYLENOL brand and several other over-the-counter medicines, such as MOTRIN and BENADRYL, and the related suspension of manufacturing at a large plant in Pennsylvania, we have lowered our earnings estimates for both this year and next by $0.15 a share, to $4.75 and $5.20, respectively.

The recalls have monopolized Johnson & Johnson press coverage, of late. From late 2009 into early this year, the company recalled over 60 million products as a precautionary measure in response to an odor emanating from medicine containers.

And this cloud is not yet going away. Concurrent with its latest earnings release, Johnson & Johnson announced that it has received a grand jury subpoena from the Eastern District of Pennsylvania. The attorney’s office is conducting a federal investigation into the circumstances surrounding the recalls. The closure of the aforementioned plant, which manufactured the company’s liquid pediatric drugs, came following the Food and Drug Administration’s inspection.

It wasn’t all bad news for Johnson & Johnson, however. On the plus side, sales of several newly launched pharmaceuticals are ramping up at a solid pace. They include biologics to treat psoriasis, arthritis, and schizophrenia in adults. Sales of several other core drugs, such as PREZISTA (for HIV) and VELCADE (for multiple melanoma), are also faring well. In the Consumer division, sales of skin care products in North America and baby care products in international markets are meaningfully above last year's levels.

At the Medical Devices and Diagnostics unit, advanced sterilization products were a key factor behind the division's year-to-year sales increase of 4%. Meanwhile, the company received clearance from the FDA for the first silicone hydrogel disposable contact lens in the United States. It also signed a definitive agreement to acquire a developer of minimally invasive devices that address strokes. All told, we look for earnings growth of close to 10% annually over the next several years, and this stock offers attractive total return potential out to 2013-2015.

About The Company: Johnson & Johnson manufactures and sells health care products. Its major lines consist of numerous household products. The company operates in a diverse number segments, including Consumer (baby care, nonprescription drugs, sanitary protection, and skin care), Medical Device & Diagnostics (wound closures, minimally invasive surgical instruments, diagnostics, orthopedics, and contact lenses), and Pharmaceutical (contraceptives, psychiatric, anti-infective, and dermatological drugs).