Jefferies starts Kenvue coverage with Buy, sets $27 target

On Monday, Jefferies initiated coverage on Kenvue Inc (NYSE:KVUE), a company specializing in skin, beauty, and oral care products, with a Buy rating and a price target of $27.00. The firm highlighted the company's ongoing transformation from a cash-oriented business to one focused on growth. Kenvue is channeling reinvestment into its well-known brands, which is expected to rejuvenate the business.

The company is projected to achieve mid-single-digit percentage organic growth and double-digit percentage earnings per share growth by 2026. The financial outlook is also positive, with free cash flow anticipated to grow approximately 20%. This growth is seen as a catalyst for potential capital returns to shareholders in the future.

Jefferies anticipates that as Kenvue's transformation progresses, the company's shares will experience a re-rating. The firm's analysis suggests an increase in the share valuation multiple from 17 times to 20 times, aligning Kenvue with its industry peers. This adjustment reflects the firm's confidence in Kenvue's strategic direction and growth potential.

The firm's assessment underscores the significance of Kenvue's strategic investments in its core brand categories. By reallocating funds to areas with the highest growth potential, Kenvue aims to drive both its top and bottom lines. This strategy is expected to enhance the company's market position and financial performance over the coming years.

The price target of $27.00 set by Jefferies represents the firm's expectation of Kenvue's share value based on the company's growth trajectory and industry comparison. The Buy rating serves as an indicator of the firm's positive outlook on Kenvue's stock performance.

In other recent news, Kenvue Inc. (NYSE:KVUE), a global leader in health and beauty products, has unveiled its Neutrogena Collagen Bank skincare line. This new product line, which was developed with dermatologists, targets the pre-aging market with a particular focus on Gen Z consumers. The Neutrogena Collagen Bank utilizes a patented micro-peptide formula that is designed to penetrate more than 10 layers under the skin's surface, addressing five key markers for maintaining the skin's firming support matrix.

In other financial developments, Kenvue reported a modest organic growth of 1.5% year-over-year and a significant increase in adjusted gross profit margin to 61.6% in its second-quarter earnings call for 2024. Despite volume declines in the Self Care and Skin Health and Beauty segments, Kenvue is on track to meet its financial targets for the year, with plans to increase brand investments by up to $100 million.

The company anticipates a full-year adjusted operating margin of 21% to 22% and expects to deliver within the sales and EPS outlook ranges for 2024. Notably, Kenvue is investing in high-yield strategies, including healthcare professional and direct consumer engagement, and expects to achieve an attractive total shareholder return in 2025 and beyond.

InvestingPro Insights

As Kenvue Inc (NYSE:KVUE) continues to draw attention with its strategic shift towards growth, real-time data from InvestingPro provides additional context for investors considering the stock. With a market capitalization of $44.09 billion, Kenvue's efforts to rejuvenate its business seem to be reflected in its impressive gross profit margins of 57.51% over the last twelve months as of Q2 2024. The company's stock is also trading at a high earnings multiple of 37.74, which could be indicative of the market's high expectations for its growth potential.

InvestingPro Tips shed light on Kenvue's moderate level of debt and its strong performance over the last three months, with a price total return of 25.44%, suggesting a positive investor sentiment. Moreover, analysts on InvestingPro predict that Kenvue will be profitable this year, a crucial factor for investors looking for a sound financial profile. It's noteworthy that the company is currently trading near its 52-week high, at 97.75% of the peak, which aligns with Jefferies' optimistic view on the stock.

For investors seeking a deeper analysis, InvestingPro offers additional tips on Kenvue, providing a comprehensive outlook that can help inform investment decisions. The platform indicates that there are six more InvestingPro Tips available, which can be accessed for further expert insights into Kenvue's financial health and market performance.

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