Johnson & Johnson (NYSE:JNJ) continues to battles against the thunder and lightning of the Reuters story out on Friday that the company has been guilty of knowingly selling its baby powder product with asbestos in the mix. It’s a damning idea, and it has the stock down by nearly $50B in market cap.

The company has fired back on a number of levels, including a powerful letter on Friday that noted the unlikelihood of keeping this kind of story quite for “literally decades”, and the astounding conspiracy that would have to be involved to accomplish this – which, quite frankly, makes a heck of a lot of sense to us.. that does seem quite unlikely.

Johnson & Johnson (NYSE:JNJ) also fired back on Monday, authorizing the repurchase of up to $5 bln of common stock as it “believes its shares are an attractive investment opportunity”.

Interestingly enough, JNJ is still a stock that is growing revenues at about 1% while trading at 15 times next year’s earnings with the EPS growth stuck at 6%.

We would view it as a stock that could actually trade at a premium from this level in terms of multiple – as odd as that sounds – simply given the mood of the market right now. JNJ is essentially a “flight to safety” stock. It has a track record of low volatility.

It’s as non-cyclical as it gets (nothing the company sells is a luxury item, and anything you need from JNJ is just as needed whether the economy is in a boom or a bust), and it has a strong dividend.

And it’s in that class of defensive names that always pops up on the Bloomberg terminal for portfolio managers when the VIX is rooted above 20.

So, as we have noted, there is that “gift” dimension to the name right now.

However, there is another perspective. Will the company hit its 2019 fiscal year projections with this PR nightmare in place?

There are other brands. And there’s quite a bit of press over the presence of “poison” in something made for babies. That doesn’t play well, no matter what the truth is. You have to be a bit cynical to deal properly with markets. And, in this case, it’s not just about legal costs to fend off the circling sharks in the class-action lawsuit game – and the list is growing fast. It’s also about consumer choices.

The disaster – and this is a disaster – is going to cost the company a great deal. The remarkable thing that stands out here is how the company and its shareholders have no recourse against Reuters if it turns out that the story got it wrong.


Satellite Imagery

Johnson & Johnson (NYSE:JNJ) trumpets itself as a company that, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide.

Its Consumer segment offers baby care products under the JOHNSON’S brand; oral care products under the LISTERINE brand; beauty products under the AVEENO, CLEAN & CLEAR, DABAO, JOHNSON’S Adult, LE PETITE MARSEILLAIS, NEUTROGENA, RoC, and OGX brands; over-the-counter medicines, including acetaminophen products under the TYLENOL brand; cold, flu, and allergy products under the SUDAFED brand; allergy products under the BENADRYL and ZYRTEC brands; ibuprofen products under the MOTRIN IB brand; and acid reflux products under the PEPCID brand.

This segment also provides women’s health products, such as sanitary pads under the STAYFREE and CAREFREE brands, and tampons under the o.b. brand; wound care products comprising adhesive bandages under the BAND-AID brand and first aid products under the NEOSPORIN brand.

The company’s Pharmaceutical segment offers various products in the areas of immunology, infectious diseases and vaccines, neuroscience, oncology, cardiovascular and metabolic, and pulmonary hypertension diseases.

Its Medical Devices segment provides orthopedic products; general surgery, biosurgical, endomechanical, and energy products; electrophysiology products to treat cardiovascular disease; sterilization and disinfection products to reduce surgical infection; diabetes care products that include blood glucose monitoring; and vision care products, such as disposable contact lenses and ophthalmic products related to cataract and laser refractive surgery.

The company markets its products to general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals for prescription use, as well as for use in the professional fields by physicians, nurses, hospitals, eye care professionals, and clinics.

Johnson & Johnson (NYSE:JNJ) managed to rope in revenues totaling $20.3B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 3.6%, as compared to year-ago data in comparable terms.

In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($19.4B against $27.4B, respectively).

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