UBS analysts initiated coverage of Kenvue Inc (KVUE), the recent spinoff of Johnson & Johnson (NYSE:JNJ)'s consumer brand segment, with a ‘Neutral’ rating and a 12-month target price of $28 per share, saying the company is well positioned to deliver sustainable mid-single-digit organic revenue growth over the medium term.
“With much of the low-hanging fruit from a valuation perspective captured following the +20% performance since IPO, we think KVUE has become more of a ‘show-me story’ and the direction of the stock will depend on estimate revisions from here,” the analysts wrote.
“We could become more positive should the company begin to display signs of more consistent share performance vs peers in the near term; conversely, a re-acceleration of share losses could lead us to become more negative,” they added.
Analysts at UBS noted that their data suggests that KVUE has among the most attractive category/region growth profiles across its Household Products & Personal Care coverage, yet the company has been unable to consistently deliver this level of growth as a result of emerging competition, stock-keeping unit (SKU) rationalization and product recalls with performance roughly about 90 basis points below its underlying category growth the last three years.
They do, however, expect KVUE to narrow the gap as many of these issues are in the past and see a path to delivering 4% plus organic revenue growth based on their 2024 and 2025 estimates.
Shares of Kenvue slipped 3% to $25.46 in early afternoon trading on Tuesday.
Contact Sean at sean@proactiveinvestors.com