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35%
Advertising % of Sales Average Median
Source: Company reports and J.P. Morgan estimates.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
29
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
R&D Is Higher Than Peers
On the other hand, KVUE􀋖s R&D spending is in the top quartile vs. peers at 2.5%
(average 2.0% and median 1.8%), which speaks to the company􀋖s commitment to
spending behind developing innovation and driving unique claims for its products.
Figure 43: Research and Development Expense vs. Peers
CY22 or Last Fiscal* where noted
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
R&D % of Sales Average Median
Source: Company reports and J.P. Morgan estimates.
Longer term, KVUE􀋖s financial algorithm calls for earnings growth ahead of sales
growth, although given the burden of stand-alone company costs and incremental
interest expense, earnings per share growth will likely fall below this target in 2023 and
2024 before seeing faster growth in 2025 as the company sees leverage throughout the
P&L for the aforementioned reasons. From an EBITDA perspective, however, we do see
KVUE generating profit growth ahead of sales growth from 2023-2025 with a threeyear
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.
Figure 44: KVUE EBITDA Growth Outlook
21.7%
0.9%
-5.4%
5.3% 4.9%
8.2%
$3,101
$3,775 $3,810 $3,606 $3,797 $3,983
$4,308
-10%
-5%
0%
5%
10%
15%
20%
25%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
2019 2020 2021 2022 2023E 2024E 2025E
EBITDA $ m (left-axis) EBITDA YOY Growth (right-axis)
Source: Company reports and J.P. Morgan estimates.
Figure 45: KVUE EBITDA vs. Sales Growth Outlook
6.1%
4.3%
0%
1%
2%
3%
4%
5%
6%
7%
EBITDA CAGR (2023-2025) Sales CAGR (2023-2025)
Source: J.P. Morgan estimates.
For ease of comparison, we prefer to look at EBITDA as the primary profit KPI for
KVUE as the company􀋖s adjusted earnings per share excludes the impact of
amortization of definite life intangible assets, which it treats 100% of brands/
trademarks, while competitors do not adjust this expense out. As such, KVUE􀋖s adjusted
earnings appear higher than they otherwise would following the accounting convention
across our coverage universe. In our model we present adjusted earnings per share both
with and without the impact of amortization of intangible assets, but we think investors
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
30
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
may prefer to look to EBITDA.
Versus the peer set, KVUE􀋖s EBITDA margins are in the top quartile at 24.1% vs.
average 21.3% and median 21.8% (ex-OLPX average 18.8% and median 20.9%), but
still trail closest peer HLN (25.1%), and are between PG (25.0%) and CL (23.5%). We
see opportunity for KVUE to expand EBITDA margins ahead as pricing flows through,
inflation abates, and the company works to take out costs to stand up the company (e.g.,
TSA, TMA).