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Johnson & Johnson Shares Take a Hit Amid Talc Powder Report

We think the pullback in the stock puts the shares near our fair value estimate and think the long-term implications on the price will not be significant after litigation.


Damien Conover: Johnson & Johnson stock is down close to 10% today, largely on news of a media report that came out that suggested Johnson & Johnson's talc powder might be related to major health issues, most notably cancer. Within the media report, a lot of ideas were floated that there was this link between asbestos and potentially the talc powder.

Now, there's still going to be a lot of cases that will need to come out litigating this, but our general belief is that J&J will litigate these one by one, and really, over a long period of time wear down the defendants, and the outcome will largely be not a significant impact to the valuation. 

With this 10% pullback in the stock, we think the shares are trading pretty close to our fair value, so we were thinking the stock was a little bit overvalued going into the news, and following this news the stock actually looks relatively fairly valued.

We continue to think Johnson and Johnson is well positioned with a wide economic moat, really with a huge diversity of assets that are bringing in a lot of cash flows that will really help fund the firm through any potential legal concerns that it might have with this talc powder issue.

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.