Kenvue stock price forecast: Is this JNJ spin-off a good buy?

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on Aug 23, 2023
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  • Kenvue stock price rose sharply on Tuesday.
  • The company is a great firm, with a strong market share.
  • Company spin-offs tend to outperform their parent firms.

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Kenvue (NYSE: KVUE) stock price jumped by more than 3% on Tuesday as investors reacted to the oversubscription of an exchange offer for Johnson & Johnson (NYSE: JNJ). The stock jumped to a high of $23.80, over 6% above the lowest level this year.

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Is Kenvue a good investment?

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Kenvue is the biggest company in the consumer health industry. It provides products in self-care, skin health & beauty, and essential health services. Its top products are Tylenol, Calpol, Nicorette, Aveeno, and Neutrogena among others.

Kenvue is a relatively new company that came out of Johnson & Johnson, one of the biggest firms in the United States. Its closest competitor is Haleon, a company that was also spun off from GlaxoSmithKline.

Kenvue’s business has been doing well in the past few years. Its financials show that the firm made over $15 billion in annual revenue in 2022, up from $14.4 billion in the previous year. Kenvue is a highly profitable company as its net income came in at $2 billion. 10 of its brands make over $400 million in annual revenue.

The most recent earnings showed that the company’s net sales jumped by 56.4% to $4 billion while its reported EPS was 23 cents. It gross margin dropped slightly to 55.5% while the adjusted EBITDA was 24.5%. The firm expects that its organic growth for the year will be between 5.5% and 6.5%. 

The case for Kenvue stock

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Kenvue stock

Kenvue stock price chart

I believe that Kenvue is a good investment for three main reasons. First, historically, spin-offs tend to outperform their parent companies in the long term. This happens because these firms are able to implement growth strategies that are independent from the big parent company. For example, Haleon share price has jumped by 30% in the past 12 months while GSK is barely unchanged.

Second, Haleon is reasonably priced. It has a market cap of $43.7 billion and annual net profits of over $2 billion. This profitability will likely continue growing in the coming years as the company readjusts as an independent firm. 

Finally, Kenvue has well-known brands that have substantial market share in its industry. For example, Band-Aid is the best-selling bandage brand in the US while Listerine is a leading brand in oral care. Other brands like Johnsons and Neutrogena have a strong market share as well.

Therefore, with Kenvue, we have a well-known company that has a robust balance sheet, strong market share, and is reasonably priced. The risks for the investment are the litigation about the Talc product and the stronger US dollar. A stronger dollar makes some of its products expensive in some markets.

Therefore, I view the recent Kenvue stock price dip as a good buying opportunity for a Buffet-style company. In the long term, I suspect that the shares will jump to over $30.

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