27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
The Cleveland County District Court in Oklahoma ordered Johnson & Johnson (NYSE:JNJ) and its Janssen unit to pay $572 million to settle a lawsuit relating to their opioid drugs.
The Analysts
ENTER TO WIN $500 IN STOCK OR CRYPTO
Enter your email and you'll also get Benzinga's ultimate morning update AND a free $30 gift card and more!
Morgan Stanley analyst David Lewis maintained an Equal-weight rating on Johnson & Johnson with a $145 price target for the shares of Johnson & Johnson.
Barclays analyst Kristen Stewart maintained an Equal Weight rating and $140 price target.
BMO Capital Markets analyst Joanne Wuensch maintained at Outperform, with a $157 price target.
Morgan Stanley: Oklahoma Verdict A Near-Term Sentiment Positive
The Oklahoma decision was better than feared, but does not materially alter Morgan Stanley's view on the path forward and the eventual outcome for the company, Lewis said in a Tuesday note.
The $572-million payment was closer to the firm's expectations, but below Street base-case assumptions, which were in the $1.5 billion to $2 billion range, the analyst said.
Morgan Stanley therefore sees the verdict as a near-term sentiment positive, he said.
Cautioning against extrapolating too much in either a positive or negative direction, Lewis said the eventual outcome is far from clear, as the company plans to appeal the Oklahoma decision.
Additionally, the analyst does not see the decision as precedent-setting.
The decision cannot be used as a pointer toward outcomes in other states and municipalities, Lewis said.
Morgan Stanley projects a base case exposure of $6 billion for Johnson & Johnson's opioid liability and exposure of $16 billion in a bear case.
"Yesterday's judgment does not alter our view," the analyst said.
The next steps in litigation for Johnson & Johnson are post-trial motions in the Oklahoma case and multidistrict litigation in Ohio that is set to begin Oct. 21 and cnsolidates about 85% of all opioid cases, according to Morgan Stanley.
FREE REPORT: How To Learn Options Trading Fast
In this special report, you will learn the four best strategies for trading options, how to stay safe as a complete beginner, a 411% trade case study, PLUS how to access two new potential winning options trades starting today.Claim Your Free Report Here.
Additional state cases in Washington, South Carolina, Alaska and California are set to take place in 2020, Lewis said.
See also: Good News For Bad Cholesterol Drug Sends Medicines Company Shares Flying
Barclays: Shares To Trade At Discount Due To Litigation Overhang
The $572 million in damages are far less than the $17.2 billion the state of Oklahoma was asking for and less than what the Street was bracing for, Stewart said in a Tuesday note.
The analyst believes the amount could ultimately be lower.
In comparison, Purdue settled for $270 million and Teva Pharmaceutical Industries Ltd (NYSE:TEVA) paid $85 million in settlements, the analyst said.
Even if J&J is not successful on appeal, it can afford to pay given the $15 billion in cash and securities and $18 billion in free cash flow it generates, she said.
Stewart sees the litigation as an overhang on the stock. J&J is also involved in other legal matters, including the talc litigation, the analyst said.
"We believe J&J shares are likely to continue to trade at a discount to its sum-of-the-parts valuation due to the litigation overhang."
BMO Expects Extended Resolution
An appeal process could extend into 2021, and should it proceed to the U.S. Supreme Court, it could take an additional one to two years, Wuensch said in a Monday note.
The analyst also pointed to the federal multidistrict litigation that bundles opioid cases for over 20 companies that is expected to begin Oct. 21.
Notwithstanding the $15.2 billion in cash, equivalents and marketable securities on the second-quarter balance sheet and its AAA credit rating, J&J is not into the habit of accruing legal payments until they are probable and reasonably estimated, she said.
"We remind investors that litigation is long, lengthy, and difficult to read, and while the amount is less than it could have been, we would expect an extended resolution."
The Price Action
Johnson & Johnson shares were trading higher by 1.71% at $129.99 at the time of publication Tuesday.
Related Link: The Daily Biotech Pulse: Nuvectra Explores Strategic Options, J&J To Contend Opioid Ruling, Sesen Bio Gets New CFO
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.