The decision is in.
An Oklahoma judge ruled against Johnson & Johnson (JNJ) in the state's opioid trial and the company was found liable in playing a role in the Oklahoma's opioid crisis. As a result, the company has been ordered to pay $572 million in damages. Johnson & Johnson said it will appeal the decision.
Even though the ruling went against the company, the stock is telling a different story in after-hours trading. Shares are trading roughly 2% to 4% higher, because that $572 million fine is well below the expectations many investors and analysts had into the announcement.
Digging through some recent sell-side commentary, J.P. Morgan wrote last week that its base case was in the several hundred million dollar range, but estimated that an initial multi-billion figure was "not out the question."
Along similar lines, a Jefferies analyst appearing on CNBC shortly after the decision was made public said on air that the $572 million was below estimates in the $1 billion to $2 billion range.
It's also nice to see the stock pop after-hours, but keep in mind that this decision won't be the last of Johnson & Johnson's litigation risk. We would not buy shares on this pop alone. The company must still navigate through a much bigger opioid lawsuit that takes place in Ohio, as well as ongoing talc litigation. Nevertheless, we believe Johnson & Johnson is capable of handling such potential fines due to its AAA balance sheet and strong pharmaceutical franchise. Furthermore, we have said the stock reflects too much downside and no wins.
We will weigh in again on JNJ on Tuesday.