Kenvue

Kenvue delivered 3% revenue growth (0.9% from price/mix and 0.7% from volume) and 7% adjusted EPS growth during the second quarter.

Why it matters: This marks the first time in six quarters that Kenvue managed to deliver volume growth, a feat we view as impressive given the challenging macro conditions from the Middle East conflicts and soft consumer sentiment. All three categories delivered positive organic growth. After suffering consistent volume challenges since Kenvue went public, Skin health and the beauty segment carries the momentum it entered the year with into the second quarter and became the best performing category for the second consecutive quarter. Major markets like North America and Europe, Middle East, and Africa remain muted, with both regions up a low-single-digit percentage, but Latin America had another strong quarter, with sales up 14%.

The bottom line: We maintain our $23 fair value estimate for wide-moat Kenvue, which reflects the agreed-upon purchase price of $3.50 plus 0.14625 shares of Kimberly-Clark at a $133 per share fair value estimate. Using the Aug. 6 close price, though, Kenvue shareholders would be paid roughly $19.50 per share if the deal were to close tomorrow. We have not heard any updates on the deal ever since the acquisition was approved by shareholders on Jan. 29. Barring any regulatory challenges, the deal is expected to close in the second half of 2026.

We maintain our $23 fair value estimate for wide-moat Kenvue, which reflects the agreed-upon purchase price of $3.50 plus 0.14625 shares of Kimberly-Clark at a $133-per-share fair value. The acquisition deal was approved by shareholders on Jan. 29. Barring any regulatory challenges, the deal is expected to close in the second half of 2026.

Kenvue operates in three segments: self care (40% of total sales), skin health and beauty (30%), and essential health (30%). It enjoyed significant pricing power during 2023 and part of 2024, thanks to high inflation in many of its key markets, but we are now seeing normalization in price trends. For 2025 and onward, we expect pricing tailwinds to recede significantly and provide a low-single-digit contribution to organic sales growth. Volume has seen some difficult comparisons in self care during 2024, but we expect this to remediate in 2025 and return to a low-single-digit level. Recently, the recovery in skin health and beauty has been a key focus for the firm. We expect a recovery in markets like the US and China, coupled with additional marketing and promotion efforts, to fuel segment volume growth in the next three years. Over the long term, we foresee macro factors such as an aging population, premiumization of consumer healthcare products, and growing emerging markets to provide tailwinds for all three segments.

We forecast margin improvement driven by continued improvements in its supply chain and an increased efficiency in operation through a more focused and lean portfolio. We expect Kenvue to spend roughly 3% of total sales on research and development—on par with some of its key competitors—to develop new products and innovate existing ones to keep pace with evolving consumer trends. To optimize its portfolio and focus more on its key brands, Kenvue has divested a number of nonstrategic brands over the last decade. For example, Nizoral, an antidandruff shampoo that Kenvue divested Asia-Pacific rights to, made up 12.5% of sales in the region and was lagging a clear leader, Kang Wang, which controlled more than 40% of the region’s medicated shampoo sales in 2017. In 2019, Kenvue divested RoC, an antiaging skincare brand that controlled 2% of the global fragmented dermocosmetic facial care market, significantly lagging La Roche-Posay, Avène, and Vichy, three brands that combined made up more than a third of the market. Overall, Kenvue divested 15 brands over 2016-22 and reduced its stock-keeping units by 21%. The result of this strategic move is a more aligned and focused portfolio that is made up of market leaders well positioned to fuel future growth.

In an ever-changing digital environment, we expect Kenvue to allocate a high proportion of marketing expenditure to digital advertising, which can quickly adapt to changing consumer preferences and behavior, allowing the company to market its products where consumer eyes are. We believe the firm’s vast resources enable it to respond to evolving consumer trends more effectively and more cost-efficiently than smaller competitors.

We assign Kenvue a Morningstar economic moat rating of wide because we believe its strong brand reputation and customer loyalty (intangible assets) as well as significant economies of scale (cost advantage) should support economic profits for at least the next 20 years. By our analysis, Kenvue has consistently achieved a return on invested capital (including goodwill) in the low teens over the past decade, higher than our estimate of its weighted average cost of capital of 7%. We believe it will be able to maintain a similar level of ROIC for the next 20 years.

Kenvue has five brands that generate over $1 billion in sales—Johnson’s, Neutrogena, Listerine, Tylenol, and Aveeno—as well as a number of brands that generate over $400 million in sales: Nicorette, Zyrtec, Band-Aid, Benadryl, Motrin, and OGX. Many of Kenvue’s brands boast strong brand power and have outgrown their markets over the past decade. In fact, some have such strong brand recognition that they are synonymous with their generic names, with Band-Aid the most notable example. All of Kenvue’s top brands, such as Nicorette, Listerine, and Imodium, are market leaders in their respective categories in North America. Kenvue’s brands have also held their market leadership for over a decade, demonstrating stability in market share. Lastly, Kenvue’s brands do not have a meaningful competitor in most markets. The rest of space is shared among minor brands and private labels that have no significant shares.

One of the main reasons for Kenvue’s market outperformance, in our opinion, is the significant brand power and customer loyalty its brands have amassed, with decades of history on the shelf and inside people’s homes. Listerine first became commercially available in 1914, Band-Aid in 1921, and Tylenol in 1955, so Kenvue’s brands’ reputation, which is underpinned by their long-standing history, is difficult to replicate. We also believe a number of Kenvue’s brands (Tylenol, Motrin, Zyrtec, Band-Aid, and Benadryl) are sought out in times of poor health, so the importance of brand familiarity and trust is heightened. Because Kenvue’s brands are backed by years of scientific research, they benefit from recommendations of professionals across its mix of products. For example, Nicorette is the number one doctor- and pharmacist-recommended smoking cessation brand, and Listerine is the number one dentist-recommended mouthwash in the US.

Many of Kenvue’s brands have a moderate to significant pricing premium to their close competitors, and that premium is magnified when compared with private labels. But even at higher prices, consumers continue to choose Kenvue’s brands over competitors. Furthermore, Kenvue is able to stay ahead of the industry in terms of pricing, consistently raising prices higher than a brand’s group average. The leading market share in many of the categories it plays in, even at higher prices, illustrates Kenvue’s strong brand reputation and a high level of consumer trust and loyalty.

To ensure its brand prowess and to maintain its leading position, Kenvue spends roughly 4% of sales on research and development and 10% on advertising and marketing, on par with wide-moat competitor Procter & Gamble (3% and 11%, respectively). We believe Kenvue can maintain its leading share position and entrenched standing with retailers through product innovation thanks to its extensive research. For example, since 2009, Kenvue (and Johnson & Johnson) generated more than 90% of industry-sponsored research on baby skin care, and it also leads in mouthwash research. We believe the knowledge gained through these studies is instrumental in Kenvue launching products that are well received by consumers and maintaining its market leadership, demonstrated by its number-one spot in global baby toiletries and global mouthwash industry.

We believe that through its impressive scale and global footprint, Kenvue has garnered favorable relationships with its suppliers and achieved significant economies of scale that smaller competitors are not able to achieve. Given the market dominance that many of Kenvue’s brands enjoy, we contend that retailers rely on these products to drive traffic in their stores, upholding our belief that Kenvue is a category captain in many product channels. A category captain recommends optimal product mix, promotional strategies, and product placement, and the captain and retailers share data and analysis. This is a critical competitive advantage for large manufacturers, not only over new entrants and small players, but also in intracategory competition among the leading three or four brands, as it helps the category captain retain prime real estate in the store. Such relationships are mutually beneficial, with the vendor becoming an essential retail partner, developing sales strategies to maximize volume and retailers’ margins while prioritizing its own brands. In our view, trusted manufacturers like Kenvue, which operate with a wide array of consumer health products, are critical to retailers that are reluctant to risk costly out-of-stocks with unproven suppliers.

We also see Kenvue enjoying cost advantages, although evidence of this moat source is weaker compared with what we see for intangible assets. We view customer acquisition costs as a critical metric to assess cost advantages for consumer packaged-goods manufacturers and believe Kenvue has excelled on this front. Kenvue has grown at the pace of or more quickly than the industry while spending less on advertising and marketing (10% of total sales versus industry average of 15% of total sales), which helps it post higher returns compared with its competitors. Furthermore, slotting fees present a challenge to CPG manufacturers, especially for upstart enterprises. We believe Kenvue is well positioned to exercise its scale to negotiate favorable slotting fees and fend off any new entries from stealing its shelf space.

With autonomy from its former parent, Kenvue can allocate resources to best fit its needs and expand the business.

Macro drivers like an aging population and premiumization of healthcare will act as tailwinds for all of Kenvue’s brands.

A continued focus on digital advertising and marketing will keep the company well positioned to fend off any new competitors in e-commerce.

Negative press on Tylenol, Kenvue's biggest product by revenue, from the White House could adversely affect demand and hurt future earnings potential.

Personalization of health paves the way for smaller niche players to carve out a share of the market with bespoke offerings. Kenvue will have a tough time fighting for these areas, given its megabrands' difficulty in catering to these consumers.

New talc litigation in the UK and potentially in other countries could result in a significant financial hit to Kenvue.