'The stock reaction is not supported by science': Here's what Wall Street is saying about the safety concerns involving Johnson & Johnson's baby powder

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'The stock reaction is not supported by science': Here's what Wall Street is saying about the safety concerns involving Johnson & Johnson's baby powder

A container of Johnson's baby powder.

Justin Sullivan/Getty Images

A container of Johnson's baby powder.

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  • Johnson & Johnson shares fell Monday, extending the stock's plunge on the back of a Reuters investigation into the company's baby powder.
  • The healthcare company was aware for decades that its baby powder contained traces of asbestos, according to Reuters, citing internal documents. Johnson & Johnson has denied the report.
  • The majority of Wall Street analysts viewed the stock's initial decline as an overreaction, but acknowledged headwinds could arise from investors' concerns about the product.

Johnson & Johnson fell 4% Monday as the fallout from a report about the company's baby powder continued. Many Wall Street analysts said the stock's initial reaction was overdone, but pointed out renewed concerns over the product's safety would prove challenging.

The healthcare company's stock plunged 10% Friday after Reuters said internal documents revealed Johnson & Johnson knew for decades that its baby powder sometimes contained traces of asbestos. The company denied this claim in a statement.

Analysts noted this was not the first revelation of safety concerns around the product. A St. Louis jury earlier this year awarded $4.69 billion to 22 women who said its talcum baby powder gave them ovarian cancer.

Here is a selection of commentary from Wall Street analysts on the stock's reaction to the report, and what could come next:

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Morgan Stanley

Morgan Stanley

Morgan Stanley equity analyst David Lewis wrote in a report on Friday that the "stock reaction is not supported by science and may inflate potential legal exposure."

Specifically, Lewis said the scientific research between talcum powder and cancer is "inconclusive but research is ongoing."

To be sure, Reuters cited documentation showing that from at least 1971 to the early 2000s, the company as well as scientists and doctors "fretted over the problem and how to address it while failing to disclose it to regulators or the public."

Lewis carries an "equal-weight" rating on the stock, and views it as "attractive." His price target is $153 per share.

CFRA

CFRA

CFRA Research analyst Colin Sarcola downgraded Johnson & Johnson's stock on Friday to "hold" from "buy," writing in a note that he no longer finds the shares attractive at current levels given the elevated risk surrounding the brand.

The analyst wrote that while the company denies the report's claims, he expects "significant damage will unfold for JNJ's valuable brand name in consumer products and medical devices, which has been built over decades."

Sarcola, who also slashed his 12-month price target on the stock to $134 from $164, said the brand name and its consumer trust are "critical" for its success.

"We see today's news potentially impacting sales of everything from baby shampoo to prosthetic hips."

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BMO Capital Markets

BMO Capital Markets

BMO Capital Markets analyst Joanne Wuensch wrote that the stock's initial move appeared to be an overreaction.

"The health care industry is litigious, and we never pretend to be lawyers, but it is not surprising that an article from Reuters outlining years of potential knowledge regarding the perils of talc should agitate investors," she said. "Further, in a difficult stock market JNJ as a 'safe haven' investment may appear not-so-safe."

The analyst added: "In our opinion litigation overhangs are real, and we do not minimize the situation, but the stock pull back does seem over done to us."

Wuensch carries an "outperform" rating on the stock, with a bullish $154 per share price target.

Cowen

Cowen

Cowen analysts Dr. Joshua Jennings and Harris Iqbal wrote in a note to clients on Friday that the sell-off was likely a knee-jerk reaction.

"Although challenging to pinpoint a conclusive range of potential lawsuit settlement amounts, our high-level analysis suggests the move in shares today to be overdone," the analysts wrote.

Cowen currently has an "outperform" rating on the stock with a bullish price target of $155.

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UBS

UBS

UBS analyst Carter Gould wrote in a client note on Friday that these renewed safety concerns come at a particularly inopportune time for the company.

"While we view today's move as overdone (given the implied number of settlements / payouts), this clearly brings these talc bases back to the forefront as an overhang just as the company had been gaining some momentum in winning / dismissing these cases," he said.

Gould currently rates Johnson & Johnson as "buy" with a 12-month price target of $154.