RBC Capital Markets analysts downgraded Kenvue (NYSE:KVUE) stock on Tuesday, citing challenges in the company's Skin Health & Beauty segment, particularly with its Neutrogena brand.
The firm maintained its price target (PT) but shifted the stock rating to Sector Perform from Outperform.
The company’s shares fell nearly 1% in premarket trading.
Kenvue, which went public in May 2023, has experienced sustained pressure on its Skin Health & Beauty business, leading to market share losses. Despite a strong performance in Self Care and Essential Health segments, Neutrogena, a major contributor to Kenvue's sales, has seen a significant decline in US household penetration and sluggish market share trends.
“We estimate Neutrogena is at least a $1.5B brand making it at least a third of Skin Health & Beauty sales (or nearly 10% of total KVUE sales),” analysts noted.
“As a result of Neutrogena’s challenges in the US, Kenvue has lost material share across acne treatments, facial moisturizers & cleansers, anti-aging products, sun care, and cosmetics,” they added.
According to RBC, Kenvue’s competition has capitalized on Neutrogena's downturn. Brands such as La Roche Posay, CeraVe, Hero, and Olay have gained market share at Neutrogena's expense.
CeraVe, in particular, has become increasingly popular with younger demographics, leveraging social media influencers and platforms like TikTok, which has impacted Neutrogena's market position.
RBC's outlook for KVUE’s long-term performance is below the consensus estimates. The firm projects that the Skin Health & Beauty segment will continue to lag behind category growth through 2024 and into 2025.
Specifically, analysts’ projections for Kenvue's organic sales and earnings per share (EPS) in 2025 are more conservative than the consensus, pointing to skepticism about the segment's recovery prospects.
Regarding valuation, Kenvue's stock is now trading at a premium relative to historical levels and its peers in the Home and Personal Care (HPC) industry.
Analysts said that the stock's current valuation is approaching what the firm considers fair value, and without a stronger performance from the Skin Health & Beauty business, it is difficult to justify further upside for Kenvue's stock.