J&J Retail Traders Unfazed By Court Rejecting 3rd Talc Settlement, But Analyst Sees Stock Pullback Risk

Shares of Johnson & Johnson dropped nearly 7.6% on Tuesday, marking their worst session in over six years following a court's rejection of the company's third attempt to resolve talc-related litigation through bankruptcy proceedings. Retail investors, however, appeared more resilient.

A Texas judge dismissed J&J's attempt to settle class action lawsuits related to talcum powder claims via a $10 billion Chapter 11 filing. 

The company had aimed to settle claims against its subsidiary, Red River Talc, through this bankruptcy process. 

The plaintiffs accuse J&J of promoting baby powder while knowing about its potential risks, including ovarian cancer.

Judge Christopher Lopez ruled that J&J's process for soliciting votes from tens of thousands of claimants was flawed. 

Previous attempts to address talc-related lawsuits through similar bankruptcy filings in New Jersey were dismissed in 2023.

In response, J&J stated it would revert to the tort system to fight the talc litigation, labeling the claims as based on "junk science" and influenced by third-party litigation funding. 

J&J highlighted its strong legal track record, having won 16 out of 17 ovarian cancer cases in the past 11 years and settling 95% of mesothelioma lawsuits.

However, Stocktwits sentiment for J&J improved from 'bearish' to 'neutral,' accompanied by a 1,025% spike in message volume.

Some retail traders viewed the drop as an overreaction. One user dismissed the decline as a result of “irrational fears.” 

At the same time, another pointed out J&J’s financial strength, stating, “They can afford $10B with over $24B cash and a market cap over $300 billion. No way it goes Chapter 11.”

According to The Fly, Morgan Stanley expects Johnson & Johnson shares to retrace some of their year-to-date outperformance, with the stock up nearly 15% year-to-date versus the S&P 500's almost 5% decline. 

The analyst noted that the new ruling differs from the previous bankruptcy attempt in New Jersey, which was dismissed "due to lack of imminent and immediate financial distress."

The firm has an 'Equal Weight' rating and a $163 price target on J&J shares, which were marginally higher in Tuesday's after-hours trading.

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