J&J Okays $5B Stock Buyback Plan, Stock Remains Stressed

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Johnson & JohnsonJNJ said its board of directors has authorized a share buyback plan worth $5 billion and maintained its previously issued guidance for 2018.

J&J expects 2018 adjusted earnings per share in the range of $8.13-$8.18while revenues are anticipated in the band of $81-$81.4 billion.

J&J's stock was down 2.9% on Monday after declining 10% on Friday, following a Reuters report, which stated that the pharma giant knew for decades that its baby powders contained asbestos.

J&J has more than 11,000 cases pending in relation to its baby powders containing talc in the United States. Most lawsuits allege that the company's talc-based products including its baby powders contain asbestos, which causes its users to develop ovarian cancer.

So far this year, J&J's stock has declined 7.5% against the industry 's increase of 5%.

The Reuters article informed that a scrutiny of J&J's internal reports and other confidential documents showed that from 1971 to early 2000s, its raw talc and finished powders sometimes tested positive for trace amounts of asbestos. The internal reports and other confidential documents were released as part of a lawsuit by plaintiffs.

On Friday, J&J issued a statement wherein it called the reports by Reuters "one-sided, false, and inflammatory". In an interview to CNBC on Monday, J&J's chief executive officer (CEO), Alex Gorsky, said that the company "unequivocally" believes that its talc/baby products do not contain asbestos, a fact which has been demonstrated in thousands of tests and studies conducted over decades on nearly 100k patients. Meanwhile, J&J also got ads published in leading newspapers, which stressed that the company has scientific evidence that its talc is safe.

The share repurchase was also probably one of the many efforts by the company to boost investor confidence in its stock after the Reuters article broke.

The link between talc and cancer has been rumored for decades but remains scientifically unproven. Medical experts differ sharply on whether talc increases cancer risk in consumers who use it. The American Cancer Society notes that studies so far have produced mixed results with some showing no connection at all and some inducing a slightly increased risk.

It has been suggested that a link between talc and cancer may be due to the fact that talc and asbestos often occur together in deposits and it gets inadvertently mixed.

It is tough to actually say what the near-term impact will be. J&J is in big trouble now as it has lost some $50 billion in market capitalization after the bombshell article was published by Reuters. It will be interesting to see if J&J makes any disclosures on presence of talc in its baby powder or takes the product off-shelves or the FDA gets involved in the issue.

J&J might be able to put the issue behind it as it has more than $30 billion of cash and baby products comprise only 2% of its sales. A decline in sales of these products should not hurt the company's top line much.

Nonetheless, it doesn't look like the denials by J&J can help its stock recover after the massive sell-off.

J&J currently has a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked large-cap pharma stocks are Merck & Co., Inc. MRK , Novartis AG NVS and Roche Holding AG RHHBY , all three carrying a Zacks Rank #2 (Buy).

Merck's earnings estimates have increased 1.4% for 2018 and 1.3% for 2019 over the past 60 days. The company's shares have surged 33.6% this year so far.

Novartis' earnings estimates have inched up 1% for 2018 and 0.5% for 2019 over the past 60 days. The stock has improved 2.1% this year so far.

Roche's earnings estimates for 2018 have moved 0.9% north while the same for 2019 has been revised 2.6% upward in the past 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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