On Wednesday, Bernstein initiated coverage on Kenvue Inc (NYSE:KVUE) with an Underperform rating and a price target of $18.00. The investment firm projects a 12% potential downside for the stock, based on its current trajectory. The analyst at Bernstein highlighted concerns about Kenvue's consistent market share loss in the majority of its business segments over the past years.
Kenvue, the spinoff from Johnson & Johnson's Consumer Health division, is seen as struggling to stabilize its market share without significant reinvestment. The firm's analysis indicates that Kenvue's investment in fiscal year 2024 may fall short of what is needed to turn around its performance. The Consumer Health sector is generally seen as a positive area within Staples, but the analyst cautioned against a one-size-fits-all outlook, noting that while some areas within the sector show promise, others pose more significant challenges.
The company's category growth has been one of the lowest compared to its U.S. Household and Personal Care (HPC) peers, averaging only 3-4% over the past decade. This is notably less than the growth seen by European peer Haleon. Kenvue's relative performance has been particularly poor, with growth lagging behind its categories and peers by about 300 basis points in both 2022 and 2023.
Despite Kenvue's plans to increase its advertising investment by $300 million in 2024, raising its advertising and promotion spend from approximately 9% to 11% of sales, Bernstein remains skeptical. The firm believes that a more appropriate level of advertising spend should be in the mid-teens percentage of sales, closer to Haleon's 17-18%. Such an increase in spending could potentially lead to a significant reduction in earnings, all other factors being equal.
InvestingPro Insights
As Kenvue Inc (NYSE:KVUE) faces scrutiny over its market share and growth strategies, investors and analysts are closely monitoring its financial health and future prospects. Notably, Kenvue boasts an impressive gross profit margin of approximately 56% for the last twelve months as of Q1 2023, reflecting the company's strong ability to control costs relative to sales. This is a key metric that suggests Kenvue retains the capacity to generate profit despite market challenges.
However, it's important to note that two analysts have revised their earnings downwards for the upcoming period, indicating some concern over the company's short-term earnings potential. This aligns with the caution expressed by Bernstein regarding the company's need for significant reinvestment to stabilize market share. Kenvue's moderate level of debt and a price-to-earnings (P/E) ratio of 23.01, adjusted to 19.38 for the last twelve months, provide a mixed financial picture that investors should consider.
For those looking to delve deeper into Kenvue's financials and future outlook, there are additional InvestingPro Tips available that could offer valuable insights. By using the promo code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription to access these tips and more detailed analysis. The company's next earnings date is set for May 29, 2024, which will be a significant date for investors tracking Kenvue's performance and strategic direction.
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