Johnson & Johnson (JNJ) may have trouble beautifying its share price for a time, even amidst a vehement scientific and legal defense.
The shares have fallen precipitously, from a high near $150 per share just before a Reuters report alleged that the company knew about asbestos in its talc powder for decades, to a close of $128.09 on Friday.
"The truth is that many parents would rather chew glass than use Johnson & Johnson products on their children [right now]," Eric Schiffer, CEO of the Patriarch Organization and Chairman of Reputation Management Consultants, told Real Money. "That reputation applies beyond talc too."
Schiffer explained that even as the company defends itself on scientific and legal grounds, the ubiquitous headlines have taken their toll to a far larger degree than the 0.3% of sales talc represents for the New Jersey-based healthcare conglomerate.
To be sure, the company has shown an ability to defend itself and come back from prior bad press, as it did in 2010 in response to bad headlines related to a Tylenol recall. Shares have doubled in value since that time.
Further, CEO Alex Gorsky made a personal appeal Monday afternoon on the company's website in a bid to tamp down the most recent controversy, explaining that reports of product safety lapses are defamatory.
"I want you to hear it directly from me: We know our talc is safe. In fact, for over 100 years Johnson & Johnson has known the talc in our baby powder is the purest, safest, pharmaceutical-grade talc on earth," Gorsky says in the video.
Gorsky's defense was laid out broadly, with the company outlining omissions and misstatements in the Reuters report and scientific studies vindicating the company.
"Thousands of independent tests by regulators and the world's leading labs prove our baby powder has never contained asbestos," the statement added, linking to an entire company website outlining a defense of its talc products.
Order in the Court of Public Opinion
Unfortunately for Johnson & Johnson, the company's defense, so far, has been outshone by a recent court case to the tune of a $4.7 billion decision. Johnson & Johnson indicated it will appeal the ruling.
"The litigation has increased substantially and I expect an avalanche of litigation still coming," Schiffer said. "The company is going to need to wage a war in the courtroom to maintain consumer trust."
Settlements in these type of situations can lessen hits to a company's cash pile, but may not placate many consumers. Instead, Schiffer suggested the company will need a strongly exculpatory judgment in its favor to restore its currently tarnished public image.
Schiffer conceded that Johnson & Johnson's recently announced $5 billion stock buyback goes to show that the company remains confident in its ability to fight these cases to do just that, adding that it should buoy many shareholders through this rough patch.
Nonetheless, the dust, or talcum powder in this case, will need to settle before many stock buyers and shoppers feel comfortable with Johnson & Johnson.
"Talc does not seem to be an issue that is going to resolve quickly for JNJ and we would expect shares to trade at a lower multiple pending further clarity on the company's exposure to this issue," J.P. Morgan analyst Chris Schott wrote in a note to clients following the reports. "[That could take] an extended period of time."
So, as Jim Cramer has suggested, maybe investors should likewise be a bit cautious for a more concrete signal before moving more dry powder into JNJ stock, as the reliable dividend stock is still dealing with these negative headlines.
