johnsone/initiation · Datasets at Hugging Face

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To determine our target multiples for KVUE we use a blended average based on the
comparable analysis discussed above. Given KVUE􀋖s 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 HLN􀋖s 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

To determine our target multiples for KVUE we use a blended average based on the

comparable analysis discussed above. Given KVUE􀋖s 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 HLN􀋖s 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