[On :Freetrade:] Johnson & Johnson (JNJ) 🔬

Quite a shocking revealing that the world’s biggest healthcare company with a market cap of circa $360bn (that’s Tesla x 6) had small amounts of asbestos in its baby powder from 1971 to early 2000s. They also (unsuccessfully) attempted to promote the use of asbestos with the relevant regulators.

The worst thing: they deliberately kept this in secret from the public and the regulators.

10% wiped out off the market cap in a day, following GE’s path of misery (albeit for different reasons), it is more and more apparent that such term as a ‘safe stock’ is becoming vestigial.

Probably this is not the end of the negative trend. Considering that J&J will now be much more scrutinised, one can only assume that even an absolute collapse is a possibility if there will be a significant number of cancer victims going forward.

Do you think this whole thing will end up being forgotten or rather extensively reviewed and investigated?

4 Likes

News like this is always shocking but millions of mothers around the world have been using the talcum powder on their babies (I know my mum used it on me!).

It’s bad that they kept this ‘secret ingredient’ from the public but wouldn’t it be quite difficult to prove as someone would have to have been using the powder exclusively, otherwise you would have to compare other factors and other products used too?

And yes @vlad, are there any safe stocks left - who’s to say that the FAANG stocks are any ‘safer’?

2 Likes

My point exactly! Who would have known Facebook had a chance to get into all of those scandals? Who can be sure that Apple does not break the criminal law or Amazon does not have any similar ‘sins’ under their sleeves?

Just makes me think again that it is so much safer to go with S&P 500 (or a more diversified funds) than picking a few ‘hopefully big winners’.

6 Likes

As soon as J&J is available in the stock universe I’m buying it. That and Disney are the two US stocks I want the most.

1 Like

Even though they might have to pay billions out in compensation?

Yes, I’ll still be buying it. I hope this news continues to drive the share price right down.

I’d probably agree with Pigeonbruh. Its pretty terrible news and there may possibly be a large fine (although they have already settled this case previously). With that said, this is a very different case from the demise of GE.

1 Like

Markets generally don’t care about things like this, they tank massively then rebound, almost every example of things like this i’ve profited on. Baby powder is a tiny fraction of J&Js market, look at the quantity of medical devices they produce for example - companies aren’t going to stop buying those because of this incident.

1 Like

Since RBS I know there’s no concept of ‘safe’ stocks - just degrees of risk, which is why I focus more on cheap market trackers these days.

2 Likes

No-one knows of course, but in the case of the primarily ad-funded members of FAANG you might look at the business model and guess that because their users are not their customers there’s an inherent additional risk that’s not there in quite the same way with AAN. Facebook and Google have financial incentives to collect and process user data in order to construct better quality profiles they can serve ads against, and the risk is that they do that in ways that sometimes, later, turn out to have been a Bad Thing. FB is experiencing this now and I wonder if things will come out about G in future. (I do think G is probably a more principled co than FB, but who knows.)

I think AAN are less exposed to that kind of risk because their users are for the most part their customers, and so their business model inherently gives them better alignment with their users. Not that they (or indeed any other co) don’t have their own, different risks though.

1 Like

This is unlikely to have a long term impact. JNJ spend about $1 billion every year on legal cases and have a glossy website documenting the history of talc and related cases.

1 Like

There was a thread on Reddit asking people if they had to put money in to a company that would still be around 100 years from now which would it be. JNJ got a solid number of mentions. It’s a massive company and it’s not going anywhere soon.

A bit like Enron then?

3 Likes

I don’t think it’s anything like Enron, unless there’s a big audit firm covering J&J’s faud with dodgy accounting.

I was referencing that statement really. People say this about companies all the time.

2 Likes

I dialled into the Q3 conferenceJNJ Earnings Presentation Q3 2019 PW.pdf (2.6 MB) call this morning and thought I would share the presentation and my notes with anybody who is interested.
If any of these don’t make sense then please let me know and I’ll try to remember and explain more

Notes:

  • Quarter EPS is up a lot and that is driven by all segments. Margin improvement & profitability is a key driver in all segments but consumer is key
  • Medical Devices is s till a key growth a real growth area for the company
  • Forward buys by Japanese customer added about 100bps of sales growth due to a consumption tax coming into effect next year
  • R&D is still a big expense and continues to be invested in, $2.6B went to R&D this Quarter. Immunology in Pharma business is a key R&D investment area
  • There is a high overall tax rate this year.
  • Consumer operating margin increased 4.5% YoY
  • Medical operating margin increased 2.5% YoY
  • EPS guidance has been revised up (130bps) and performance metric windows have been narrowed for the FY. Margin guidance is revised down slightly
  • Currency is still the biggest issue, the team do not forecast currency movements but this is the single biggest item effecting sales, reflecting the strong underlying business.
  • FY EPS will be 8.84 to 8.89 reflecting about 5.5% YoY growth
  • Q4 2019 numbers will be lower YoY becuase of exceptional items and disposals last year.
  • Capital allocation program is not expected to change and share repo’s are the least preferred method of using capital
  • Tremfya vs Skyrizi (Abbvie) is a key battleground but team are not worried. All geographies are perfomring well so far and launch program is ahead of target. Tremfya sales are up 70% QoQ and team aren;t concnered about Skyrizi or Humira as they believe their data is better and sales teams are located better. Competition is fierce as always but team are happy with their commitments
  • Litigation is overblow. Headlines only happen when J&J are ruled against, they win 3 times more cases than they lose. Happy to look at settlement options when the victims are getting the money but many times the victims don’t get any of the compensation so J&J continue to fight these cases. Advertsiing by lawyers to drum up class-action cases is a major drag but nothing that the company is not prepared for.
  • Baby Talc cases are also overblown. They have not seen any operating impact becuase of these rulings and baby is only about 12% of conumers sales - 80% of this 12% are from outside of US so impact is expected to be extremely small.
  • Overall China griowth is expected to be about 15% YoY and have had no tarriff impact so far. 14% growth for Pharma, 5% for consumer & 19% for Medical. Medical also is now No1 in the market. Overall CHina is now worth about $1B for Q3
  • Growth is expected to continue next year with no major headwinds. Market will grow about 3% next year but J&J expect to take above average share. Operating margin improvements will continue but will slow, most of that work is done this year.
  • Biosims are impacting about $2B of revenue this year which is lower than expected. Team expect this to be bigger next year as more drugs gain approval.
6 Likes