A Federal Court’s Ruling to Deny Johnson & Johnson’s Talc Strategy Doesn’t Impact Our Outlook

A federal court ruling to deny Johnson & Johnson’s legal strategy of placing talc-related litigation into a bankrupt subsidiary doesn’t impact our fair value estimate. We continue to view J&J’s talc-related litigation expenses and reserves of close to $6 billion (along with an additional projected $2 billion) as likely sufficient to cover most of the talc legal costs. Further, we don’t see the litigation threat as impacting the firm’s wide moat that is largely based on intangible assets and switching costs from the drug and device segments. Also, the brand power of the consumer business is partly shielded from the talc controversy, since the firm uses many different branded names (like Neutrogena) that are not closely associated, which reduces the read through from talc to other product lines.