Redburn-Atlantic sets Kenvue stock with neutral rating, $23.50 target

On Thursday, Redburn-Atlantic initiated coverage on Kenvue Inc (NYSE:KVUE), assigning a Neutral rating to the stock with a price target of $23.50. The firm's analysis pointed to a less-than-stellar performance by the company since its public debut. According to InvestingPro data, the stock has declined 7.79% in the past week, though it maintains a substantial market capitalization of $41.63 billion. The current analysis suggests the stock is trading near its Fair Value. Redburn-Atlantic expressed concern over Kenvue's failure to meet its organic sales growth targets of 3-4% in 2024 and the forecast for continued below-category growth in 2025.

While Kenvue has indicated potential margin expansion and earnings per share (EPS) growth for 2025, Redburn-Atlantic remains skeptical. The firm expects the company to experience flat margins, in contrast to the anticipated expansion, and predicts a modest decline in EPS rather than growth. Currently, Kenvue maintains impressive gross profit margins of 58.14%, though it trades at a relatively high P/E ratio of 43.34x. The analysis highlighted three main reasons for this cautious stance: the underperformance of Kenvue's Neutrogena brand, a history of underinvestment by the company's former parent, and execution challenges linked to Kenvue's transition to a standalone public entity.

The analyst noted that these issues are interconnected and stem from decisions made under previous ownership. During a period when competitors were increasing their brand investments, Kenvue's former parent company, J&J Consumer Healthcare, was reducing spending. Despite Kenvue increasing its brand support by 20% in fiscal year 2024, the firm emphasized the need for Kenvue to build upon emerging positive signs from the Neutrogena brand, which had lost a significant market share in the U.S. skincare category. However, this category's growth is now slowing, adding to the challenges Kenvue faces.

In other recent news, Kenvue Inc. has been the focus of multiple analyst reports and strategic developments. Jefferies analyst Keith Devas raised the company's stock target to $27, maintaining a Buy rating, attributing the increase to Kenvue's heightened reinvestment rate and marketing expenditures. Piper Sandler also increased its price target for Kenvue to $27, citing positive insights from the Consumer Analyst Group of New York conference and the company's confidence in its second-half prospects. Meanwhile, Evercore ISI initiated coverage with an "In Line" rating and a $25 target, pointing out challenges in Kenvue's Skin Health & Beauty segment, which saw a sales decline despite increased marketing efforts.

Additionally, Kenvue announced the appointment of three new independent directors to its board as part of an agreement with Starboard Value LP, aiming to enhance growth and shareholder value. William Blair maintained a Market Perform rating, noting Kenvue's organic sales growth and EPS alignment with projections, despite sales falling short of expectations. The analyst highlighted Kenvue's progress in cost savings and innovation, which are expected to drive sales growth.

Kenvue's management has confirmed its guidance, acknowledging some disruptions but expressing optimism for the latter half of the year. The company's Vue Forward program, focused on cost savings and operational efficiency, has achieved significant progress, contributing to improved financial performance. These developments come as Kenvue navigates its post-spinoff landscape, aiming to optimize its portfolio and enhance its market presence.

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