Healthcare giant Johnson & Johnson (JNJ 1.18%) has a lot going its way. It is one of the largest and most recognizable companies in its industry, boasting a vast portfolio of products and a culture of innovation. However, Johnson & Johnson has also been dealing with a barrage of lawsuits alleging that its talc-based products gave customers cancer.
The company recently received more bad news on that front that sent its share price tumbling. Should investors take this opportunity to pick up the company's shares on the dip, or are Johnson & Johnson's legal troubles enough of a reason to avoid the stock?
NYSE: JNJ
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Johnson & Johnson's legal maneuver falls flat ... again
First, we need some background to understand the latest developments in Johnson & Johnson's long battle against these cases. In 2021, the company created a subsidiary called LTL Management, which would become responsible for managing the legal claims against its cosmetic talc-based products. It then had the subsidiary file for bankruptcy protection to help manage the litigation and limit liability.
The company also offered an $8.9 billion settlement through LTL with no admission of wrongdoing in the hope that it would settle most of these lawsuits. However, in January, a U.S. Court of Appeals dismissed LTL Management's bankruptcy attempt, arguing that bankruptcy is designed for companies that face immediate financial distress. LTL Management, due to its relationship with Johnson & Johnson, is not in any such distress, even with the litany of lawsuits it is facing, or so the court's argument went.
Johnson & Johnson appealed the decision, but it has not found any success in those efforts. The latest ruling from a different court came down in late July with the same result and the exact same rationale: LTL Management is not a bankruptcy protection candidate because it isn't in any serious financial danger. Johnson & Johnson isn't giving up: In a press release, the company said it planned to appeal the decision once again, denying in no uncertain terms the claims alleged in these lawsuits.
With another setback to the company's strategy, it is unclear where things will go next.
What does this mean for long-term investors?
It is hard to say when, if ever, Johnson & Johnson will be done with these lawsuits. Despite that, investors need not be worried too much. The fact that the company's legal maneuvering through LTL was dismissed twice is actually a good indicator of J&J's financial strength. When the court dismissed the company's bankruptcy attempt in January, the ruling alluded to Johnson & Johnson's "exceptionally strong balance sheet," solid financial position, AAA credit rating -- the highest possible -- and billions in dividends distributed to shareholders, among other things.
The reasons why LTL isn't in any financial distress and is ineligible to file for bankruptcy are also solid reasons to invest in the stock. Johnson & Johnson generally records growing revenue, profits, and cash flow. The company's vast portfolio of pharmaceuticals features plenty of blockbusters, and its deep pipeline will produce more over time.
So far this year, some of the company's regulatory highlights include the approval of cancer medicine Akeega in Europe. This treatment is under regulatory review in the U.S. On the clinical front, Johnson & Johnson reported positive data readouts from several medicines in the second quarter, including its plaque psoriasis treatment Tremfya, which aced a phase 3 study in treating inflammatory bowel disease.
The company's overall business is diversified since it also features a medical devices unit. Johnson & Johnson split off its consumer health division into a separate company, but the move should increase revenue growth over the long run (and it retained partial ownership of the new company, Kyndryl, so it continues to gain from that investment). Lastly, Johnson & Johnson is a Dividend King on its 61st consecutive year of annual payout increases. Johnson & Johnson is still a top pick for investors looking for a stable company whose dividend is safe. And while it is essential to monitor how its legal challenges develop, the company's stock is a buy regardless.
