Morningstar | Legal Concerns Weigh on Johnson & Johnson as Media Report Highlights Potential Talc Powder Risks
A media report highlighting legal concerns for Johnson & Johnson's talc powder is weighing on its stock price, but we don't expect any major change to our fair value estimate based on the report. Johnson & Johnson is facing over 6,000 cases related to the use of its talc powder causing personal injury (cancer in many cases). These legal issues have been in front of the company for many years, and we expect the cases to be litigated out over several more years. The cases already decided have shown mixed outcomes with close to half of the verdicts going against the company and the other half supporting the company. We expect all these cases will be appealed and further litigated. The company has already established a legal defense accrual to help litigate against these cases. Overall, we don't expect these legal cases to disrupt the wide moat of the firm that sources its moat from innovation and brand power. However, the brand power of some of the consumer related products may feel some increasing pressure as these cases continue.In the media report, several relationships between Johnson & Johnson's talc powder and asbestos were cited that could lead to health problems, but we believe J&J's rigorous testing over the years will provide legal protection against the majority of these cases. While some uncertainty remains around the credibility of the legal claims made against J&J, we believe the majority of these cases are motivated by trying to link an unrelated disease to talc powder use in an effort to gain a settlement from J&J. By litigating these cases one by one, we expect J&J will wear down the plaintiff group, ending with a settlement that does not cause a major impact to the company's stock price. As a reminder, when J&J was facing litigation concerns surrounding its metal-on-metal hips, the company successfully navigated payments in the billions of dollars without a causing a major impact to its valuation.
Johnson & Johnson is a holding company engaged in the research and development, manufacture and sale of a range of products in the health care field. The company has three business segments: Consumer, which includes a range of products focused on personal healthcare used in the beauty, over-the-counter pharmaceutical, baby care, oral care, women's health and wound care markets; Pharmaceutical, which is focused on six therapeutic areas: immunology, infectious diseases, neuroscience, oncology, cardiovascular and metabolism and pulmonary hypertension; and Medical Devices, which includes products used in the orthopaedic, surgery, interventional solutions, and eye health fields.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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