The Medical Devices division will continue to be a significant contributor to J&J's top-line and is expected to grow substantially faster than pharmaceuticals despite the recent influx of competition to the Cordis division's cardiovascular products.

We have established a price target of $72 per share, which implies a P/E multiple of 15.9x our 2008 EPS estimate of $4.53. Although at the current price we believe the shares are fairly valued, we view a price around $62 as an attractive point to begin accumulating the stock up to our target of $72.

Aflac Target Price Lowered

Aflac Incorporated (AFL) is expected to release its second quarter earnings on July 23, 2008, with a conference call scheduled for the next morning. First quarter operating earnings of $475 million, or $0.98 per share, were slightly ahead of estimates, based on better-than-expected sales growth in its Japan operations.

As we remain confident about the fundamental outlook for AFL, especially in Japan, we expect some expansion in the multiple in the near term. We will get further color on the outlook for the company, when a clearer picture about the performance of the new product and sales though new channels in Japan emerges. Ahead of the results, we are maintaining our FY08 and FY09 estimates and our Hold rating on the shares of AFL.

Although expanding margins in Japan and a growing U.S. sales force should propel earnings growth, we think that growth will come at a slower pace than the company's historical 15%-plus track record. New entrants in the field have intensified competition both in Japan and the U.S.

The shares are currently trading at a price-to-book multiple of 3.21x, a 10.1% premium to the peer group median of 2.92x, which looks somewhat reasonable given an ROE of 20.0%, at 6.33% premium to the peer group median. AFL has historically traded at a premium valuation to other health insurers, reflecting in our opinion the company's superior growth prospects, consistent earnings record, superior ROE and strong financial position.

Our new six-month target price of $62.00 per share (down from $70.00 per share) incorporates the current multiple of 3.26x on our estimated book value of $19.00 per share at September 30, 2008 equating to 15.6x our EPS estimate for FY2008.

Royal Caribbean a Good Buy

We expect Royal Caribbean (RCL) to continue to benefit from favorable supply and steady pricing trends, which should lead to solid growth in revenue yields. The higher revenue yields should also lead to strong growth in net income as the company brings on additional capacity.

While we expect higher fuel prices to remain challenging going forward, we believe that core operating growth will remain attractive.