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To determine our target multiples for KVUE we use a blended average based on the |
comparable analysis discussed above. Given KVUEs characteristics similar to HLN, we |
view it as the most direct comparable company and see investors anchoring valuation |
against it for now – as such in our target multiple analysis we assign a one-third |
weighting to HLNs multiple. We ascribe a one-third weighting to other Consumer |
Health peers and one-third weighting to HPC & Beauty peers (i.e., in total two-thirds |
weighting to Consumer Health and one-third to HPC & Beauty). The lower weighting to |
higher-multiple HPC & Beauty seems fair to us given generally slower growth/margin |
profile vs. Beauty peers historically and less everyday use vs. HPC peers. We then |
assign a 70% weighting to EV/EBITDA as the primary valuation metric and 30% to |
DCF as a secondary metric. As such, our Dec 2023 price target embeds an EV/EBITDA |
multiple of 15.1x, which is 0.4x below the current 2023E multiple for KVUE. |
Table 4: EV/EBITDA Multiple for Peer Sets |
Target Multiple Blend |
EV/EBITDA Weighting Multiple |
Haleon 33% 13.9x |
Consumer Health ex-Haleon 33% 11.2x |
HPC & Beauty 33% 20.2x |
Total 100% 15.1x |
Source: Bloomberg Finance L.P. and J.P. Morgan. |
Our Dec 2023 price target of $29 is based on a blended average of the above multiples |
against our 2024 EBITDA estimate and a DCF value of $32 (based on perpetual growth |
method). Our target price implies 10% upside from the May 26 close on top of a ~3% |
dividend yield. |
Table 5: Method 1: EV/EBITDA Derivation |
Price Target Methodology on EV/EBITDA Dec-23 |
CY2024 EBITDA $ mn $3,983 |
Target Multiple 15.1x |
(-) Post IPO Net Debt $ mn $7,820 |
# of shares 2023E mn 1,935 |
2023 Implied Price Target $27 |
Upside/Downside 2.4% |
Source: J.P. Morgan estimates. |
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP. |
38 |
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 |
Table 6: Method 3: DCF Derivation |
$ m, except per share value |
Terminal Value (Perpetual Growth) |
CY2033E Unlevered Free Cash Flow $3,687 |
Long-Term Growth Rate 1.0% |
Terminal Value $79,813 |
Equity Value (Perpetual Growth) |
Present Value of Terminal Value $44,541 |
Present Value of Unlevered Free Cash Flows $25,496 |
-Net Debt $7,820 |
Equity Value $62,217 |
Equity Value per Share $32 |
Shares Outstanding 1,935 |
Source: J.P. Morgan estimates. |
Table 7: Blended Price Target Implies ~10% Upside from Current Levels |
Price Target Methodology Dec-23 |
Mix of EV/EBITDA 70% |
Mix of DCF 30% |
Blended $29.00 |
Upside from last price 10.1% |
Source: J.P. Morgan estimates. |
For additional context, we offer the assumptions underlying our discounted cash flows |
analysis through 2033 and sensitivity tables using both an EBITDA exit multiple and |
perpetual growth that points to meaningful upside potential in KVUE shares to the lowto |
mid-$30s range. Underlying our DCF analysis, we assume a weighted-average cost of |
capital of around 5.7% based on a beta of 0.73, risk-free rate of 3.8%, market risk |
premium of 4.8%, a marginal cost of debt of 5.0%, low-single-digit organic top-line |
growth through 2033 (decelerating from 4.8% reported in CY2023E to 2% in |
CY2033E), with the company expanding margins at an average 25 basis points |
thereafter, modest headwind from use of working capital, and capital expenditures of 3- |
4% of sales annually. |
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP. |
39 |
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 |
Table 8: KVUE DCF |
$ m |
WACC Calculation |
Beta 0.73 |
Risk-free rate 3.8% |
Market risk premium 4.8% |
Cost of Equity 7.3% |
Marginal cost of debt 5.0% |
Tax rate 25.6% |
After-tax cost of debt 3.7% |
Equity weight 55.2% |
Debt weight 44.8% |
WACC 5.7% |
Unlevered Free Cash Flow Analysis 0 1 2 3 4 5 6 7 8 9 10 11 |
$ m CY2022 CY2023 CY2024 CY2025 CY2026 CY2027 CY2028 CY2029 CY2030 CY2031 CY2032 CY2033 |
Sales $14,950.0 $15,662.3 $16,289.0 $16,972.8 $17,651.7 $18,307.3 $18,935.0 $19,530.1 $20,088.1 $20,604.7 $21,075.6 $21,497.1 |
EBIT $2,961.8 $3,163.6 $3,343.9 $3,673.8 $3,864.9 $4,054.2 $4,240.5 $4,422.6 $4,599.2 $4,769.0 $4,930.7 $5,083.0 |
Tax Rate 22.8% 25.6% 25.7% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% |
After-tax EBIT $2,286.0 $2,352.5 $2,485.4 $2,737.6 $2,879.9 $3,021.0 $3,159.9 $3,295.6 $3,427.1 $3,553.7 $3,674.1 $3,787.7 |
+D&A $644.0 $633.8 $639.5 $634.5 $655.7 $678.8 $703.7 $730.7 $759.4 $789.9 $822.2 $856.1 |
+CapEx -$374.8 -$416.7 -$482.2 -$504.2 -$529.6 -$576.7 -$624.9 -$673.8 -$718.2 -$762.4 -$806.1 -$849.1 |
+Net Change in Working Capital -$672.0 $133.5 $99.4 -$3.8 -$88.3 -$91.5 -$94.7 -$97.7 -$100.4 -$103.0 -$105.4 -$107.5 |
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