text stringlengths 1 711 |
|---|
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 |
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