Johnson & Johnson products are arranged for a photograph in New York. (Photographer: Scott Eells/Bloomberg)

J&J Analysts Say Talc Report Is Old News While Stock Plummets

(Bloomberg) -- Johnson & Johnson bulls lined up to defend the drugmaker after a Reuters report about asbestos in baby powder sent shares spiraling toward their worst session in more than 16 years.

The stock fell 9.4 percent at 1:38 p.m., which would be its biggest drop since July 2002. Analysts from firms including Barclays, Wells Fargo and JPMorgan called the sell-off overdone with as much as $45 billion wiped from J&J’s market value during the session. Barclays analyst Geoff Meacham said concerns related to asbestos being sometimes present in baby powder have been an overhang for some time and the report doesn’t materially change the outlook for the company.

J&J Analysts Say Talc Report Is Old News While Stock Plummets

Here’s what analysts are saying:

Barclays, Geoff Meacham

“The main concern from investors is whether JNJ could be faced with criminal charges down the road in light of allegations made in this morning’s Reuters report.”

“While we expect ongoing litigation regarding the company’s baby powder franchise to remain an overhang for shares both near- and long-term, we do not think the story or the risk has materially changed.”

Wells Fargo, Lawrence Biegelsen

The stock’s drop “seems excessive based purely on the potential outcomes of the talc litigation. Even if we assume that the current number of cases double to ~23K over the next year, using the same $280K per case settlement assumption translates to ~$6.5B of total liability, which would still be very manageable for JNJ.”

“With over $19B of cash and marketable securities at the end of 3Q18, we continue to see the talc litigation as manageable for the company.”

JPMorgan, Christopher Schott

“We believe today’s selloff in JNJ share (~10%, or ~$40bn in post-tax market value) prices in severe litigation risk that is unlikely in our view,” he wrote calling the drop an over-reaction.

“Talc does not seem to be an issue that is going to resolve quickly for JNJ and we would expect shares to trade at a lower multiple pending further clarity on the company’s exposure to this issue.”

Credit Suisse, Vamil Divan

“While the documents that the Reuters article cited may be reported to the public for the first time, according to J&J, these documents have been used in previous court cases,” he writes saying there is “no actual new news.”

“It’s hard to assess the potential damages that J&J could incur, as J&J has been able to reverse many of the District Court rulings.”

Citigroup, Amit Hazan

“JNJ completely refutes the premise of the article, and notes that none of the information in the article is actually new.”

“In JNJ’s view, this is all positioning. In fact, they note that every court case that has been appealed has been overturned, and for five cases before the appellate level two went in JNJ’s favor and three were declared mistrials.”

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