johnsone/initiation · Datasets at Hugging Face

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Cashflow from operations 2,407 2,821 2,953 3,268
FCFF 2,032 2,405 2,471 2,763
Margins and Growth
Revenue growth (0.7%) 4.8% 4.0% 4.2%
Total Organic Growth Rate (%) - - - -
Gross margin 55.8% 56.6% 56.7% 57.3%
EBITDA margin 24.1% 24.2% 24.5% 25.4%
EBITDA growth (5.4%) 5.3% 4.9% 8.2%
EBIT margin 22.1% 22.3% 22.4% 23.3%
Net margin 17.3% 15.4% 15.0% 15.9%
Adj. EPS growth (4.5%) (7.1%) 1.9% 9.9%
Ratios
Net debt/EBITDA NM 2.0 1.8 1.7
ROIC - - - -
ROE 13.0% 15.5% 21.6% 22.7%
Valuation
FCFF yield 4.0% 4.7% 4.9% 5.4%
Dividend yield 0.0% 1.5% 3.1% 3.2%
EV/Revenue 3.4 3.8 3.1 3.0
EV/EBITDA 14.0 15.7 12.7 11.8
Adj. P/E 19.7 21.2 20.8 18.9
Summary Investment Thesis and Valuation
Investment Thesis
We rate Kenvue (KVUE) Overweight. As the largest pure-play
consumer health company in the world, reaching 1.2 billion
consumers daily, KVUE benefits from participating in large
categories where reliability and performance matter for
consumers. As such, we highlight five KVUE attributes that
underpin our positive view: (1) resilient top-line growth
expected, (2) room for margin expansion, (3) high cash flow
conversion and shareholder-friendly capital allocation, (4)
management has a strong background not only with JNJ but with
other blue-chip CPGs with solid relationships with key
customers, and (5) attractive valuation.
Valuation
Despite the strong share performance since the IPO, we view
current valuation as attractive. Our Dec 2023 target price of $29
is based on a blended average of EV/EBITDA (based on blended
average of HLN, Consumer Health, HPC & Beauty peers) and
a DCF based on perpetual growth method. We assign a 70%
weighting to EV/EBITDA as the primary valuation method
embedding 15.1.x EV/EBITDA off our 2024E EBITDA
estimate of $4.0B (implies $27 per share) and 30% weighting to
DCF as the secondary valuation method embedding $32 per
share. KVUE currently trades at 15.5x our 2023E EBITDA and
was priced at the IPO at 13.3x our 2023E EBITDA.
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg Finance L.P. and J.P. Morgan estimates for all other tables. Note: Price history may not be
complete or exact.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
3
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Table Of Contents
Summary of Investment Thesis . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risks to Rating and Price Target . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Company Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Resilient Sales Growth in Large Categories Driven by
Consumer Mega Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Growth Strategy Focused on Five Pillars . . . . . . . . . . . . . . . . . . . . . . . . . 10
Balanced Portfolio Shaped through Strategic
Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Self Care (40% of Sales, 53% of OI, OSG +8.6% 3-YR CAGR) . . . . . . . . 12
Skin Health & Beauty (29% of Sales, 18% of OI, OSG +0.1% 3-YR
CAGR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Essential Health (31% of Sales, 28% of OI, OSG +0.9% 3-YR CAGR). . . 15
Margin Trajectory Improving Post-Strategic Transformation and Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Financial Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Path to ~+4% Top Line over Next Few Years with Upside If Elasticities
Hold Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Gross Margins Poised to Improve – Can Return to 2021 Peak by 2025 . . 26
Post-2023 Leverage in Middle of P&L to Help Drive Solid Earnings
Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Balance Sheet, FCF, CapEx. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
KVUE Deserves Premium to HLN with Potential to Converge to CL Over
Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Benchmarking Against Peers – HLN Anchor at Low End, Already at CL Levels, PG Aspirational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Price Target Derivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Most Recent Point of Sales Trends in the U.S. (NielsenIQ) . . 41
Key Brands POS Performance in the U.S. . . . . . . . . . . . . . . . . . . . . . . . . 44
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Income Statement Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . 49
Balance Sheet Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Cash Flow Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Strong, Global Management Team . . . . . . . . . . . . . . . . . . . . . . . . . 52
Global and U.S. Sales and Market Share Trends. . . . . . . . . . . . 53
Global Category Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Self Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Skin Health & Beauty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Essential Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
U.S. Pricing, Share and Volume by Category - Tracked Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
4
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research

Cashflow from operations 2,407 2,821 2,953 3,268

FCFF 2,032 2,405 2,471 2,763

Margins and Growth

Revenue growth (0.7%) 4.8% 4.0% 4.2%

Total Organic Growth Rate (%) - - - -

Gross margin 55.8% 56.6% 56.7% 57.3%

EBITDA margin 24.1% 24.2% 24.5% 25.4%

EBITDA growth (5.4%) 5.3% 4.9% 8.2%

EBIT margin 22.1% 22.3% 22.4% 23.3%

Net margin 17.3% 15.4% 15.0% 15.9%

Adj. EPS growth (4.5%) (7.1%) 1.9% 9.9%

Ratios

Net debt/EBITDA NM 2.0 1.8 1.7

ROIC - - - -

ROE 13.0% 15.5% 21.6% 22.7%

Valuation

FCFF yield 4.0% 4.7% 4.9% 5.4%

Dividend yield 0.0% 1.5% 3.1% 3.2%

EV/Revenue 3.4 3.8 3.1 3.0

EV/EBITDA 14.0 15.7 12.7 11.8

Adj. P/E 19.7 21.2 20.8 18.9

Summary Investment Thesis and Valuation

Investment Thesis

We rate Kenvue (KVUE) Overweight. As the largest pure-play

consumer health company in the world, reaching 1.2 billion

consumers daily, KVUE benefits from participating in large

categories where reliability and performance matter for

consumers. As such, we highlight five KVUE attributes that

underpin our positive view: (1) resilient top-line growth

expected, (2) room for margin expansion, (3) high cash flow

conversion and shareholder-friendly capital allocation, (4)

management has a strong background not only with JNJ but with

other blue-chip CPGs with solid relationships with key

customers, and (5) attractive valuation.

Valuation

Despite the strong share performance since the IPO, we view

current valuation as attractive. Our Dec 2023 target price of $29

is based on a blended average of EV/EBITDA (based on blended

average of HLN, Consumer Health, HPC & Beauty peers) and

a DCF based on perpetual growth method. We assign a 70%

weighting to EV/EBITDA as the primary valuation method

embedding 15.1.x EV/EBITDA off our 2024E EBITDA

estimate of $4.0B (implies $27 per share) and 30% weighting to

DCF as the secondary valuation method embedding $32 per

share. KVUE currently trades at 15.5x our 2023E EBITDA and

was priced at the IPO at 13.3x our 2023E EBITDA.

Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg Finance L.P. and J.P. Morgan estimates for all other tables. Note: Price history may not be

complete or exact.

This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.

3

Andrea Teixeira, CFA AC

(1-212) 622-6735

andrea.f.teixeira@jpmorgan.com

North America Equity Research

29 May 2023 J PMORGAN

Table Of Contents

Summary of Investment Thesis . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Risks to Rating and Price Target . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Company Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Resilient Sales Growth in Large Categories Driven by

Consumer Mega Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Growth Strategy Focused on Five Pillars . . . . . . . . . . . . . . . . . . . . . . . . . 10

Balanced Portfolio Shaped through Strategic

Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Self Care (40% of Sales, 53% of OI, OSG +8.6% 3-YR CAGR) . . . . . . . . 12

Skin Health & Beauty (29% of Sales, 18% of OI, OSG +0.1% 3-YR

CAGR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Essential Health (31% of Sales, 28% of OI, OSG +0.9% 3-YR CAGR). . . 15

Margin Trajectory Improving Post-Strategic Transformation and Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Financial Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Path to ~+4% Top Line over Next Few Years with Upside If Elasticities

Hold Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Gross Margins Poised to Improve – Can Return to 2021 Peak by 2025 . . 26

Post-2023 Leverage in Middle of P&L to Help Drive Solid Earnings

Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Balance Sheet, FCF, CapEx. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

KVUE Deserves Premium to HLN with Potential to Converge to CL Over

Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Benchmarking Against Peers – HLN Anchor at Low End, Already at CL Levels, PG Aspirational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Price Target Derivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Most Recent Point of Sales Trends in the U.S. (NielsenIQ) . . 41

Key Brands POS Performance in the U.S. . . . . . . . . . . . . . . . . . . . . . . . . 44

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Income Statement Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . 49

Balance Sheet Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Cash Flow Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Strong, Global Management Team . . . . . . . . . . . . . . . . . . . . . . . . . 52

Global and U.S. Sales and Market Share Trends. . . . . . . . . . . . 53

Global Category Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Self Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Skin Health & Beauty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Essential Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

U.S. Pricing, Share and Volume by Category - Tracked Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.

4

Andrea Teixeira, CFA AC

(1-212) 622-6735

andrea.f.teixeira@jpmorgan.com

North America Equity Research