J&J spinoff rises following favorable Tylenol court ruling

Shares of Kenvue (KVUE), a Johnson & Johnson (JNJ) spinoff, are on the rise on Tuesday morning after a favorable court ruling in a product-liability case. The company has been facing more than 400 suits over its popular painkiller Tylenol and a federal judge said plaintiffs’ scientific evidence of a link between the painkiller and autism is flawed. JPMorgan believes the court’s decision “effectively collapses the plaintiffs’ case.”

EVIDENCE REJECTED: U.S. District Judge Denise Cote in Manhattan rejected the scientific evidence behind the lawsuits alleging that prenatal exposure to over-the-counter painkiller Tylenol caused autism. The court concluded that plaintiffs in more than 400 suits accusing Kenvue and other makers and sellers of acetaminophen relied on flawed science in seeking to prove an increased risk of developmental issues in babies.

Commenting on the ruling, JPMorgan said that the decision to exclude the plaintiffs’ general causation experts’ opinions regarding Autism Spectrum Disorder, Attention Deficit Hyperactivity Disorder, and biological plausibility “effectively collapses the plaintiffs’ case” in the multi-district litigation against Kenvue. “This is a clean sweep for the defendants with none of the plaintiffs’ expert witness testimony being deemed admissible for general causation,” the firm says. JPMorgan, which expects the next step will be defendants file a motion for summary judgement, sees Kenvue shares trading up on the ruling. The firm kept an Overweight rating and $25 price target on Kenvue shares.

Canaccord also highlighted the positive court ruling for Kenvue, saying this is the best-case scenario and a win for the J&J spinoff and that it will now allow the company to turn its focus toward executing its strategy of recapturing market share, driving manufacturing and supply chain efficiency, and on launching innovative products. Canaccord maintained its Buy rating and $27 price target on Kenvue shares.

While remaining on the sidelines, UBS raised its price target on Kenvue to $23 from $20 following the news. The firm told investors in a research note that it believes this key overhang has seemingly been removed. Nonetheless, UBS still believes fundamentals for Kenvue remain “challenged.”

POSITIVE CATALYST WATCH: Last week, Citi opened a “90-day positive catalyst watch” on Kenvue ahead of the judge’s decision on the Daubert hearings on the Tylenol case. The firm attended the Daubert hearing last week and said it believes the probability of the case being has increased. Citi said at the time that it saw more upside potential in the $23-$24 per share range versus downside risk in the $18-$19 range.

PRICE ACTION: In Tuesday morning trading, shares of Kenvue have gained over 5% to $22.10.