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Do Johnson & Johnson's Ongoing Litigation Woes Spell Disaster for the Stock?

By Rachel Warren and Brian Withers – Oct 28, 2021 at 7:00AM

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A recent maneuver that consolidated plaintiff claims into a subsidiary that declared bankruptcy has raised some eyebrows from investors.

Johnson & Johnson (JNJ -0.76%) has faced its fair share of consumer lawsuits in its company history and paid out billions of dollars in settlements over the years. In this segment of Backstage Pass, recorded on Oct. 13, Fool contributors Brian Withers and Rachel Warren answer a member's question about a recent action taken by the company to deal with the wave of talc injury claims it's currently facing. 

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Brian Withers: Just a reminder, Slido is out there, sli.do in your web browser. All one word backstage pass to post some questions or comments. I don't know Rachel, if you saw Nicky's comment there about the current backlash from current whispers that they may segregate off liabilities from the talc lawsuit into another company, and then declare it bankrupt to affect the overall performance. That sounds like a drastic move to me. I don't know if you've run into anything in your research for the company?

Rachel Warren: Yes. Obviously, I'm aware of the ongoing litigation they've been dealing with. I know that's been a story that's been ongoing for years. I'm not aware of this particular thought of segregating its liabilities to declare this other company bankrupt. I don't personally know about that. It doesn't mean it hasn't been out there, but I haven't seen that.

In terms of how it may affect the company's overall performance, I think you look at how it's done over the past several years while the litigation has been ongoing historically, it hasn't really had a major impact on its share price and Johnson & Johnson has never been particularly known for it's really big leaps in share price. It's been more of the stock that provides very slow and gradual portfolio value over time and then the big. I think buying point for a lot of investors has been in its dividend, which is pretty robust.

Past performance doesn't indicate the future totally, but based on what's happened over the last several years, I wouldn't necessarily think that there will be a major dive in Johnson & Johnson shares at this point and that particular aspect, I'm not sure about it this point.

Withers: Yeah. I would say it feels like to me that spinning off that product into another company and declaring a bankrupt, I don't know that that is something that J&J management would do. I'm certain that they would go through the legal process and if there is a fine, I imagine J&J will pay it. I just looked at their balance sheet, they got $25 billion in cash.

Even if this award is substantial, I don't think it's going to be a long-term impact for the company. There have been other things that have happened like this out there in the markets and these deep-pocketed, longtime healthcare companies have been able to withstand this in the past.

Rachel Warren owns shares of Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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