Kenvue Goes Boom - Now What?

Core Insights - Kenvue Inc., a spin-off from Johnson & Johnson, is positioned for success in the consumer defensive sector, boasting a market cap of $40 billion and a strong portfolio of well-known brands [3][4][5] - The company reported a 1.5% organic sales growth in Q2 2024, surpassing market expectations of a 0.7% decline, which led to a 14% surge in stock price [9][10] - Kenvue's strategic focus on reinvesting in its brands and targeting high-yield strategies has resulted in improved margins and consistent growth [12][13][27] Financial Performance - Kenvue's Q2 2024 net sales reached $4.0 billion, with a 410 basis points increase in adjusted gross profit margin to 61.6% [11][12] - The company expects organic growth of 2% to 4% for the remainder of 2024, maintaining its EPS outlook of $1.10 to $1.20 [17][18] - Free cash flow is projected to grow from $1.7 billion in 2024 to $2.7 billion by 2026, indicating a healthy cash payout ratio and room for consistent dividend growth [23] Market Position and Strategy - Kenvue operates in a highly competitive environment, facing challenges from major players like Procter & Gamble and Unilever, as well as private and generic brands [8][28] - The company has a strong brand portfolio, including Tylenol, Neutrogena, and Listerine, which provides pricing power and demand resilience [28] - Kenvue's commitment to brand reinvestment and strategic engagement has been effective in driving growth and improving margins [12][27] Dividend and Valuation - Kenvue announced a 2.5% increase in its dividend to $0.205 per share per quarter, translating to a yield of 4.0% [21][22] - The company trades at a blended P/E ratio of 17.4x, slightly above its average P/E ratio of 16.7x, with a fair stock price estimated at $21.50 [23][24] - Despite not having a strong growth profile, Kenvue's reliable income potential makes it a suitable candidate for income-focused portfolios [25][27]