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On Tuesday, Jefferies analyst Keith Devas adjusted the price target for Kenvue Inc (NYSE:KVUE) shares, increasing it to $27.00 from the previous $26.00, while reaffirming a Buy rating on the stock. The company, currently valued at $44.67 billion, has seen its shares rise 10.55% year-to-date. According to InvestingPro data, analyst targets for the stock range from $21 to $29, with the current price of $23.37 suggesting potential upside. Devas noted the company’s ramped-up reinvestment rate, which rose to 86% in 2024, a 13 percentage point year-over-year increase. This boost was largely attributed to a significant increase in marketing expenditures, which surged by 21%. The reinvestment rate is calculated by dividing the total marketing, research and development (R&D), and net capital expenditures by the after-tax operating profit.
The analyst expressed that the elevated reinvestment is a strategic move as Kenvue transitions from a cash-centric to a growth-focused business model. This alignment is expected to put Kenvue on an even playing field with its peers, whose average household and personal care (HPC) reinvestment rate stood at 93% in 2024. The investments are anticipated to lead to mid-single-digit percentage growth and double-digit earnings per share (EPS) by 2026, potentially prompting a re-rating of the company’s stock.
In terms of segment profitability for 2024, Kenvue’s Self Care division reported the highest gross margin at 65%, followed by Skin Health & Beauty at 59%, and Essential Health at 55%. Operating margins followed a similar pattern, with Self Care leading at 33%, Essential Health at 30%, and Skin Health & Beauty at 14%. Devas pointed out that the margins for Skin Health & Beauty are lower than expected due to the significant brand and marketing investments required. This segment’s performance is also lagging behind its past performance of 19-20% between 2019 and 2021 and is trailing peers such as L’Oreal’s Dermatology segment and Procter & Gamble’s Beauty segment, both of which have margins in the 25-26% range. However, Devas believes that a return to high-teen margins is achievable as Kenvue continues its restructuring efforts to improve efficiencies.
Lastly, Devas mentioned that Kenvue is currently restricted from engaging in certain transactions until August 24, 2025, to maintain the tax treatment of the spin-off from Johnson & Johnson. These restrictions include issuing shares, business combinations, sales of assets, and similar transactions. Once these restrictions expire, Kenvue’s management is expected to consider optimizing the company’s portfolio, including trimming underperforming brands.
In other recent news, Kenvue Inc. has been the focus of several analyst updates and strategic developments. Evercore ISI initiated coverage on Kenvue with an "In Line" rating and a price target of $25.00, noting challenges in the company’s Skin Health & Beauty segment, which saw a sales decline despite increased marketing efforts. Meanwhile, Piper Sandler raised its price target for Kenvue to $27.00, maintaining an Overweight rating, citing positive impressions from the Consumer Analyst Group of New York conference and expressing confidence in the company’s second-half prospects.
Additionally, Jefferies revised its price target for Kenvue to $26.00, down from $27.00, while maintaining a Buy rating, highlighting the company’s transformation efforts and long-term potential. William Blair reaffirmed a Market Perform rating, acknowledging Kenvue’s sales growth challenges but praising improvements in gross margin and cost savings through the Vue Forward program.
In terms of corporate governance, Kenvue announced the appointment of three new independent directors to its Board, as part of a cooperation agreement with Starboard Value LP. This expansion is aimed at enhancing the company’s strategic focus on growth and shareholder value. These recent developments underscore Kenvue’s ongoing efforts to navigate its post-spinoff challenges and capitalize on strategic opportunities.
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