Johnson & Johnson Pulls Controversial Baby Powder

Credit Suisse is unfazed by the company's decision

by Jake Scott

Published on May 20, 2020 at 10:06 AM

The shares of blue-chip Johnson & Johnson (NYSE:JNJ) are up 0.6% to trade at $149.93, after the company pulled its controversial talc-based baby powder --the subject of lawsuits the last two years -- from U.S. and Canadian markets. Credit Suisse is unfazed by the news, chiming in that it only makes up 0.2% of its North American sales.

Johnson & Johnson stock has remained somewhat steadfast during the coronavirus pandemic. Now up 8% from one year ago, JNJ is within sight of its April 23 all-time high trading level of $157, and has found guidance on the charts from its 20-day moving average. An additional level of support can be found at the equity's year-to-date breakeven level, which has served as a floor for the past three weeks.

All of this has left analysts with an ample amount of optimism surrounding Johnson & Johnson stock. Of the 16 in coverage, 12 brokerages consider it a "buy" or better, while the remaining in coverage sport a "hold," with no "sells" in sight. Additionally, the consensus 12-month price target of $164.17 sits at a 10.2% discount to current levels and in record-high territory.

In the options pits, calls run the show. JNJ's 10-day call/put volume ratio of 2.50 at the International Securities Exchange (ISE), Cboe Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), sits in the elevated 84th percentile of its annual range. This implies that the appetite for short calls is much healthier than usual.

The good news for options traders is that, JNJ options are attractively priced at the moment. The stock's Schaeffer's Volatility Index (SVI) of 22% sits in the 16th percentile of its annual range, implying that near-term options traders are pricing in relatively low volatility expectations.


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