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North America Equity Research |
29 May 2023 |
J PMORGAN |
www.jpmorganmarkets.com |
Kenvue |
No More Tears as Separation from Parent to |
Accelerate Growth, FCF, Dividends; Initiate with OW Initiation |
Overweight |
KVUE, KVUE US |
Price (26 May 23):$26.30 |
Price Target (Dec-23):$29.00 |
Beverage, Household & Personal |
Care Products |
Andrea Teixeira, CFA AC |
(1-212) 622-6735 |
andrea.f.teixeira@jpmorgan.com |
Bloomberg JPMA TEIXEIRA <GO> |
Drew Levine, CFA |
(1-212) 622-0374 |
drew.levine@jpmorgan.com |
Shovana Chowdhury |
(1-212) 270-2184 |
shovana.chowdhury@jpmorgan.com |
J.P. Morgan Securities LLC |
Quarterly Forecasts (FYE Dec) |
Adj. EBITDA ($ mn) |
2022A 2023E 2024E |
Q1 800 867A 968 |
Q2 1,022 940 1,000 |
Q3 971 1,007 1,014 |
Q4 812 983 1,001 |
FY 3,606 3,797 3,983 |
Style Exposure |
We are initiating coverage of Kenvue (NYSE ticker: KVUE) with an OW rating |
and a Dec 2023 price target of $29 (70/30 mix of peer multiples and DCF). As the largest pure-play consumer health company in the world following its separation |
from parent Johnson & Johnson (N-rated by Chris Schott), we view KVUE as |
uniquely positioned to benefit from consumer mega trends (self-care, aging). We expect KVUE to deliver resilient growth ahead in large addressable markets (TAM |
~ $369bn) with iconic brands that form strong consumer connections from birth in |
a portfolio spanning cold, flu, pain, allergy, and smoke cessation OTC medicines, |
skincare, mouthwash, baby care, and wound care, among others. As a stand-alone company, we believe Kenvue board and management will be more focused and |
accountable for the growth and profitability of the business following the separation that began in 2019, with significant opportunities to scale in many |
adjacencies and markets around the world organically and through tuck-in M&A (would be incremental to our estimates and not needed to meet algorithm). |
• Large Categories That Benefit from Wellness Tailwinds and Sustainable Growth Momentum, Even after Lapping COVID Tailwinds. With 10 |
iconic brands with sales greater than $400M (Neutrogena, Listerine, Tylenol, |
Johnsons Baby, Aveeno, Nicorette, Zyrtec, Band-Aid, Stayfree/Carefree, |
OGX) as well as over 37 regional brands, KVUE is poised to offer investors at least ~4-5% three-year CAGR in organic sales (OSG) , in line with top peers. |
We note that due to supply chain constraints and SKU rationalization, KVUE lost share with OSG 3Y CAGR of+3.4% while the broader categories grew |
+4.8%. KVUE still holds solid market shares in key categories and markets, |
and like OW-rated PG, KVUE is still US-centric, which provides room to |
regain share and lift and shift some of the most iconic brands abroad. |
• Further Margin Expansion Opportunity. KVUE already delivered |
impressive +200/250 bps GM/EBITDA expansions vs. 2019, outperforming |
peers and despite cost and supply chain challenges. But we still see see KVUE generating profit growth ahead of sales growth from 2023-2025 with a three- |
year CAGR of +6.1% vs. top-line CAGR of +4.3%, implying EBITDA margin |
expansion to 25.4% in 2025 from 24.1% in 2022 (roughly +130 bps expansion) |
and 25.3% in 2021. |
• Attractive Valuation & Dividend Yield for Best-in-Class Growth |
Compounder. We believe KVUE offers upside to investors at current levels |
even after rallying from IPO price of $22 on May 3. At our $29 Dec 2023 price target, KVUE will be valued at ~16x EV/EBITDA 24E, which is |
approximately where OW-rated CL trades currently for 2023E (still ~2x |
cheaper than PG). As KVUE builds its track record as a public company (if our |
estimates for solid quarters ahead materialize) and post-potential distribution |
of shares that JNJ owns to current JNJ shareholders, we believe KVUE should |
trade with the major-league high-quality multinationals that have defensive sales, compounding growth, and solid free cash flow conversion. |
See page 92 for analyst certification and important disclosures. |
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that |
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single |
factor in making their investment decision. |
Sources for: Style Exposure – J.P. Morgan Quantitative and Derivatives Strategy; all other tables are company data and J.P. Morgan estimates. |
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP. |
2 |
Andrea Teixeira, CFA AC |
(1-212) 622-6735 |
andrea.f.teixeira@jpmorgan.com |
North America Equity Research |
29 May 2023 J PMORGAN |
Price Performance |
YTD 1m 3m 12m |
Abs - - - - |
Rel - - - - |
Company Data |
Shares O/S (mn) 1,935 |
52-week range ($) 27.80-25.25 |
Market cap ($ mn) 50,893.83 |
Exchange rate 1.00 |
Free float(%) 10.4% |
3M - Avg daily vol (mn) - |
3M - Avg daily val ($ mn) - |
Volatility (90 Day) - |
Index S&P 500 |
BBG BUY|HOLD|SELL - |
Key Metrics (FYE Dec) |
$ in millions FY22A FY23E FY24E FY25E |
Financial Estimates |
Revenue 14,950 15,662 16,289 16,973 |
Adj. EBITDA 3,606 3,797 3,983 4,308 |
Adj. EBIT 3,310 3,487 3,648 3,957 |
Adj. net income 2,589 2,404 2,451 2,693 |
Adj. EPS 1.34 1.24 1.27 1.39 |
BBG EPS - - - - |
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