The discernible voraciousness of investors is fulfilled with the all-new Kenvue IPO. Johnson & Johnson’s consumer healthcare spinoff Kenvue was slated to be released into the stock market towards the upper end of its stated share price range, in a deal that would bring $3.5 billion to the company.
A volatile stock market imbued with rising risks of recession isn’t usually a lucrative time for new stock to come to town. But as the shoe fits, it may be a different story for J&J’s Kenvue. While the US IPO market has been quite quiescent in 2022, J&J’s Kenvue is expected to renew the hopes of other companies that were holding their IPOs in abeyance.
Johnson & Johnson announced the consumer health business spinoff in November 2021 to streamline operations and regain footing in its fast-growing medical devices and pharmaceutical divisions. Kenvue’s IPO also marks J&J’s largest restructuring decision in its history in the industry for 135 years. J&J will dominate about 90 percent after Kenvue’s stock offering.
After spending months in desolation, investors finally have an IPO worth looking forward to. Kenvue IPO began trading under the ticker KVUE. Albeit it’s not apex league, the company’s popular consumer brands include Band-Aid, Tylenol, Neutrogena, Aveeno, Johnson & Johnson baby powder, and Listerine.
J&J’s Kenvue stock market debut is clearly a winner. Should you invest in the Kenvue IPO or not? Draughting a few reasons, this feature will tell you why Kenvue IPO has become a historic stock debut but is also flawed.
3 Reasons Why Investing In J&J’s Kenvue IPO Is Raging The Share Market
1. IPO Share Price Jumped After Kenvue’s Stock Debut
For 2023’s Q1, Kenvue’s preliminary estimates suggested that it hauled sales of $3.85 billion and a net income of about $330 million.
Johnson & Johnson’s consumer health business public offering was priced at $22 per share, which upsized the deal to $3.8 billion. But after its Thursday stock debut on the New York Stock Exchange, Kenvue’s share price jumped 22 percent.
“We do this from a position of strength. Kenvue is a healthy business.”
– Thibaut Mongon, CEO of Kenvue
Kenvue sold 172.8 million shares superseding its initial plans of 151 million shares. The new consumer healthcare company’s shares opened at $25.53 and closed at $26.90.
2. One Of The Largest US IPOs In The Year
The consumer healthcare spinoff takes pride in being the “world’s largest pure-play consumer health company” by revenue. Kenvue CEO Mongon believes that the company is a global leader in the intersection of consumer goods and healthcare.
So far in the year, 40 IPOs raised a combined $2.4 billion. Kenvue’s IPO raised much more than every offering. The lead underwriters for Kenvue’s IPO share price are Goldman Sachs, Bank of America, and JPMorgan Chase.
The new company’s valuation is earmarked at $41 billion, making Kenvue’s stock debut, one of the largest IPOs of 2023. The spinoff is also the largest IPO since electric automaker Rivian went public in November 2021.
3. Kenvue Is A Dividend-Paying, High Caliber Company
J&J’s spinoff offers investors a stable and lucrative company boasting of strong cash flows at an epoch when these features are considered premium in the otherwise flailing stock market.
Apart from an impressive consumer products line, J&J’s spinoff is also geographically diversified. The consumer-focused Kenvue has already been profitable in each of its three years, with some of the most well-known brands in its hegemony.
Ten Kenvue brands’ sales amounted to more than $400 million in 2022. Kenvue posted $14.95 billion in sales with a net income of $1.46 billion on a pro forma basis for 2022, as per a preliminary prospectus, filed with the Securities and Exchange Commission (SEC).
“An attractive dividend policy that will be a way for Kenvue to produce more value returns to the shareholders.”
Kenvue anticipates paying a quarterly dividend of about 20 cents per share at the end of the third quarter. The projected annual sales growth through 2025 is about 3-4 percent globally.
Why Should You Play Safe In J&J’s Kenvue IPO
While Kenvue’s dramatic entry into public offering has enthralled the market, here are a few red flags that investors must be privy to.
1. J&J’s Talc Cancer Lawsuits Are Risky Liabilities
The infamous J&J’s talc cancer legal proceedings pose an adverse risk to the healthcare company. Liable for thousands of allegations of its baby powder causing ovarian cancer in women, J&J’s lawsuits fall under the spectrum of Kenvue.
According to the IPO filing from January, Kenvue will only assume talc-related liabilities that arise outside Canada and the US. But the company still warns that litigation that isn’t covered by the indemnity still remains a significant risk to the newly-formed Kenvue.
“An unequivocally and unambiguously stated, Johnson & Johnson has agreed to retain all talc-related liabilities – and indemnify Kenvue for any and all costs arising from litigation in the United States and Canada.”
– Erik Haas, Vice President of Litigation, J&J
In April, Johnson & Johnson proposed a settlement of $8.9 billion to the claimants, that requires approval from the bankruptcy court. So, Kenvue will also face a total debt of $8.9 billion.
2. Tough Competition And Lesser Upside Potential
From industry stalwarts to private labels, there is no dearth of competition in the consumer health market. Unfortunately for investors, while Kenvue is profitable, it lacks the margins of its competitors.
Profitability does not equal a good stock, because KVUE seems fully valued and does not offer investors much upside potential. Kenvue’s stock is pitted against the likes of Bayer Consumer Health, Procter & Gamble, L’Oreal, Unilever, Kimberly Clark, and Colgate-Palmolive.
Kenvue has not swiveled its high brand recognition power into greater profitability, ranking last amongst contemporaries, on the list of return on invested capital (ROIC).
3. Public Shareholders Have No Rights
Johnson & Johnson will continue over a prepotency of 92 percent of the voting power in Kenvue after its IPO. This indicates that the new public shareholders will have minimal control over stakeholders’ rights to make decisions.
“Kenvue is laser-focused on what it does best: serving customers with the portfolio of the brands.”
– Mongon on liabilities
In a gist, the IPO will not grant any corporate governance or voting power to investors, even after digesting a chunk of their money.
