Johnson & Johnson’s stock rose more than 3% Wednesday to put it on track for its biggest percentage gain in more than a year, buoyed by news the company has agreed to pay about $9 billion to settle cosmetic-talc litigation claims.
The company
JNJ,
said late Tuesday it would pay up to $8.9 billion over 25 years to settle thousands of lawsuits alleging that cosmetic talc in its products was connected to cancers, asbestos poisoning and other illnesses.
The move is a positive for the stock as it removes the overhang of negative headlines, JPMorgan analysts said Wednesday.
“A settlement could significantly accelerate the timeline for talc litigation resolution relative to ongoing litigation (with investors broadly avoiding litigation/uncertainty in the sector) and the $8.9 billion committed is in-line with our $8-10 billion estimate (which translates to ~$3.50/share for JNJ),” analysts wrote in a note to clients. JPMorgan has a neutral rating on J&J’s stock.
“And while there is still uncertainty on if this bankruptcy refiling will be accepted by all parties involved, we do note that JNJ has secured commitments from over 60,000 current claimants to support a global resolution on these terms,” they wrote.
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A federal appeals court in January rejected the consumer products and drug maker’s move to place its talc liabilities into bankruptcy, saying that the subsidiary was not in financial distress.
J&J said Tuesday the unit has refiled for bankruptcy protection while it seeks approval of the plan.
The suits came mostly from women who say they developed ovarian cancer after using J&J’s Johnson’s Baby Powder, or a former product called Shower to Shower. The company stopped selling baby powder containing talc in the U.S. and Canada and has pledged to end global sales this year.
“From an investor perspective, it is clear to us that the talc litigation
remains a meaningful overhang on JNJ shares so resolving this issue, even at a cost of $8.9Bn, would likely be viewed as a positive,” said Guggenheim analysts led by Vamil Divan.
“Resolution of this issue would also allow investors to turn their focus to the upcoming Consumer Health separation and important clinical data updates, especially from their Pharmaceutical segment,” the analyst wrote.
Guggenheim rates the stock at neutral.
Meanwhile, the law firm Watts Guerra LLC, which along with 12 other firms represents some of the talc claimants, announced “broad support” for the deal. In a statement provided to the U.S. Bankruptcy Court of the District of New Jersey, the firm said the deal would “resolve and satisfy” J&J’s talc liability by paying women with gynecologic cancers and mesothelioma a total of $12.08 billion.
The $8.9 billion is the present value of the total payout, J&J said Tuesday, while the nominal value is expected to be about $12 billion over the 24-year period.
The stock rose 2.9% premarket but has fallen 10% in the last 12 months, while the S&P 500
SPX,
has fallen 9%.
This post was originally published on Market Watch
