Shares of Johnson & Johnson (JNJ, Financial), a pharmaceutical and medical company, have plummeted over 13% between December 13 and December 17 on reports that the company knew about asbestos in its baby powders for years.
The company’s stock is down over 4% year-to-date, but is it a “buy” going into 2019?
J&J reached 3.6% sales growth and 8% in adjusted profits in the most recent quarter. Sales continue to increases, rising to $20.3 billion in the most recent quarter, but investors are rightfully concerned that the company’s mounting lawsuits will start to impact its profits.
Johnson & Johnson’s talc powder products remain a big concern for the company and investors. Some studies suggest that talc can increase ovarian cancer risks by 33%, a major concern as more women file lawsuits against the company over ovarian cancer. If the company did know about asbestos in their baby powder since 1971, as reported, there’s a chance that the company may lose many of the remaining lawsuits.
Sales growth in the pharmaceutical division remains strong at 7%, but concerns are rising as Remicade, a top-selling drug, has started to experience sales declines. Biosimilar competition has resulted in the drug’s sales falling. Sales have been offset by the likes of Imbruvica, Zytiga, Stelara and other drugs in the company’s portfolio.
Headwinds from pricing pressure, softer market conditions and generic prices have not harmed the company’s stock in 2018, as shares have outperformed the industry in the last six months. Yet these headwinds will remain going into the 2019 year.
The company’s lawsuits have resulted in billion-dollar settlements, with one $4.7 billion verdict against the company in particular making headlines. The settlement was for a group of 22 women who claim that the powder led to ovarian cancer.
The verdict is the sixth largest in U.S. history, and there are 9,000 similar cases standing against the company. Long years of appeals are expected for many cases, but if the trend continues, many of these lawsuits may end in settlements ranging from tens of millions to hundreds of millions of dollars.
News of the verdict sent the company’s stock down 1.4% at the time, so the impact was much smaller than most investors expected.
Overall, Johnson & Johnson’s stock has performed well in 2018 and has exceled even further in the past six months. The company’s revenue growth has remained strong, and even with headwinds, its diverse portfolio will allow it to withstand lower sales in key drugs in 2019. The company’s stock, according to 2018 verdicts and stock prices, will remain a buy going into 2019.
Disclosure: The author does not have any stake in the listed equities.
