This morning Johnson & Johnson (NYSE: JNJ) reported Earnings Per Share (EPS) of 81 cents -- excluding items, beating expectations of 80 by a penny. In pre-market trading, JNJ is up 17 cents at 9:06 a.m. -- suggesting that investors were not unhappy with the result. I mistakenly thought that it would meet expectations, rather than beat them.

This morning's announcement and the market's initial reaction suggest that analyzing earnings reports is a delicate task. For example, I've found that different groups calculate different expectations. Reuters rounded up analysts who expected JNJ's EPS to be 79 cents a share; whereas the analysts surveyed by MSNMoneyCentral estimated 80 cents a share. Depending on which estimate you use, JNJ beat by a penny or two.

Then there's the matter of stripping out "items." In JNJ's case, it reported EPS of 74 before an after-tax charge for in-process research and development of $217 million associated with the acquisition of Pfizer Consumer Healthcare. Excluding that item, JNJ reported the 81 cents that Reuters used.

JNJ's operations performed well. Its global drug sales rose 8.5% to $5.95 billion for the final three months of 2006. Its medical device sales were up 7.2% to $5.17 billion and its personal-care product unit boosted sales 11.2% to $2.57 billion.

Our readers were right in predicting JNJ would beat expectations.

The outcome is a mild positive for investors. With JNJ up 9.8% in the last year and trading at a Price/Earnings (P/E) on 2007 earnings of 16.6, I think the stock is over-valued given that 23 analysts that cover the stock expect its earnings to grow 8% between 2006 and 2007 from $3.74 to $4.04/share. With a Price/Earnings to Growth (PEG) ratio of 2.08, JNJ will need to accelerate earnings growth to boost its stock price.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, a Professor of Management at Babson College, and editor of The Cohan Letter. He has no financial interest in Pfizer or Johnson & Johnson securities.

Also check out some other earnings reports that we're following, and let us know your thoughts on earnings expectations.