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Why consumer healthcare innovator Kenvue can come good for investors

Kenvue (KVUE:NYSE) $24.30
Market cap: $46.6 billion
Investors looking to add a resilient company with healthy global growth potential to portfolios should consider Kenvue (KVUE:NYSE). The $46.6 billion cap stands behind a variety of self-care, beauty and essential health products. Formerly Johnson & Johnson’s (JNJ:NYSE) consumer healthcare division, Kenvue was spun out as a standalone in 2023 via a separation that is allowing management to focus on consumer health sector opportunities without the constraints previously imposed by the erstwhile parent’s umbrella.
Shares believes Kenvue can capitalise on broader health and wellness trends by launching innovative, premium products, while key initiatives including brand investments and cost savings are laying the groundwork for profitable growth in the years ahead. Shares in Kenvue are up 18% over one year, in part reflecting the appearance of Starboard Value on the shareholder register; this activist helps companies focus on operational efficiency and margin improvement, has pushed management to pep up the performance of the Skin Health & Beauty business which is now seeing early signs of recovery.
WHAT DOES KENVUE DO?
Guided by CEO Thibaut Mongon, Kenvue is in fact the world’s largest pure-play consumer health company by revenue, with three business units Self Care, Skin Health & Beauty and Essential Health.
Rooted in science, Kenvue’s iconic brands include Listerine mouthwash, Tylenol pain reliever, Band-Aid adhesive bandages and the Neutrogena skin care label, not to mention the likes of Nicorette, Aveeno, Benadryl and Johnson’s Baby; erstwhile parent Johnson & Johnson has agreed to shield Kenvue from baby power-related legal costs in the US and Canada, although one risk to weigh is the fact the spin-out is facing claims relating to sales in other countries.
Recommended by healthcare professionals around the world, Kenvue’s brands are trusted by consumers and as such, are especially tough for cheaper private-label alternatives to unseat as a result. These everyday staples confer a good deal of resilience and pricing power upon Kenvue, which operates in markets with structural tailwinds including the increasingly health-conscious consumer and the burgeoning emerging market middle class, while recognisable brands including Neutrogena, Listerine and Aveeno in growth categories such as Skin Health & Beauty and oral care are now getting the reinvestment dollars they deserve.
GREEN SHOOTS
Candidly, Kenvue’s third-quarter results (7 November) were nothing to write home about. They revealed another period of subdued top line progress, with organic sales up just 0.9% in the period ended 29 September 2024 as price increases impacted volumes and the New Jersey-headquartered company also posting a year-on-year earnings per share decline.
However, this earnings decline reflected heavy reinvestment to prepare Kenvue for long-term growth and market share gains, while gross margins expanded by 100 basis points to 58.5% as productivity initiatives began to bear fruit.
In the results statement, CEO Mongon said this reinvestment is enabling Kenvue to ‘continue to drive share gains in Self Care, deliver broad-based growth across the Essential Health categories, and build the right foundation in Skin Health & Beauty, where we are seeing early signs of recovery. As we continue to advance our new Kenvue playbook, our team is making strong progress toward transforming into a leaner, more efficient and agile consumer health organisation driving sustainable and profitable growth.’
Jefferies observed that ‘key initiatives (brand investments, cost savings) are on track, laying necessary groundwork to drive balanced growth in the future’. The investment bank expects ‘early green shoots to emerge’ in 2025, setting the stage for ‘accelerating results’ in 2026.
Consensus estimates from LSEG show pre-tax profits falling from $3.1 billion to $2.9 billion for the year to December 2024, ahead of a recovery to $3.1 billion and $3.3 billion in 2025 and 2026 respectively.
According to Stockopedia, Kenvue trades on a prospective price-to-earnings ratio of 19.9 for 2025, broadly in line with London-listed consumer health peer Haleon (HLN), but a significant discount to competitors such as Procter & Gamble (PG:NYSE) and L’Oreal (OR:EPA) that implies significant rating catch-up scope, so long as Kenvue’s organic growth and profit performances improve.
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