Johnson & Johnson: Kenvue IPO raises $4 billion and sets the stage for a full divestiture later in 2023

JNJ stock at a glance

JNJ update

Johnson and Johnson JNJ raised nearly $4 billion by selling nearly 10% of their consumer business, called Kenvue, in an IPO. We expect J&J to dispose of the remaining interest in Kenvue KVUE later in the year, likely through a spin-off or spin-off. The implied valuation of nearly $40 billion for Kenvue is slightly lower than valuations for similar companies, but we don’t expect any major changes to J&J’s fair value estimate due to the initial partial sale of the unit.

From a competitive advantage perspective, we don’t expect the Kenvue divestiture to have a major impact on J&J’s great moat. J&J derives nearly 90% of its profits from its drug and device businesses, so the loss of its consumer business has less of an impact on its earnings and competitive position. Also, as synergies between the consumer group and the remaining drug and device businesses are very limited, we do not expect the divestiture of Kenvue to materially impact J&J’s remaining operations. The strong intangible assets in the pharma business and the transition costs in the equipment segment (along with some intangible assets) look intact.

Following the full divestment expected later this year, standalone Kenvue represents a well-positioned consumer health business with a portfolio of strong branded products. Its leading positions in beauty, OTC, baby care, and oral care should post 4% annual growth over the next three years. We expect Kenvue to be able to pass on inflationary costs largely through price increases based on strong brand power across its product portfolio. With respect to the Talk litigation, we anticipate that the overall costs will remain with both Kenvue and the remaining J&J.