The apparent cravings of investors are satisfied with the All-New Kenvue IPO. Johnson & Johnson’s consumer-healthcare spinoff Kenvue was scheduled to go public towards the high end of its stated share price range, in a deal that would net the company $3.5 billion.
A volatile stock market riddled with mounting recession risks isn’t typically a lucrative time for new stocks. But since the shoe fits, it could be a different story for J&J’s Kenvue. While the US IPO market has been fairly quiet in 2022, J&J’s Kenvue is expected to renew the hopes of other companies that have been keeping their IPOs in limbo.
Johnson & Johnson announced the spin-off of its consumer health business in November 2021 to streamline operations and re-establish a foothold in its fast-growing medical devices and pharmaceuticals businesses. Kenvue’s IPO also marks J&J’s largest restructuring decision in its 135-year history in the industry. J&J will dominate about 90 percent after Kenvue’s share offering.
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After months of desolation, investors finally have an IPO to look forward to. Kenvue IPO started trading under the ticker KVUE. While not top league, the company’s popular consumer brands include Band-Aid, Tylenol, Neutrogena, Aveeno, Johnson & Johnson baby powder, and Listerine.
J&J’s Kenvue listing is clearly a winner. Should you invest in Kenvue’s IPO or not? With a few reasons, this feature will tell you why Kenvue’s IPO has become a historic stock debut, but it’s also flawed.
3 reasons why investing in J&J’s IPO in Kenvue is rocking the stock market
1. IPO stock price jumped after Kenvue stock debut
For the first quarter of 2023, Kenvue’s preliminary estimates indicate revenue of $3.85 billion and net income of approximately $330 million.
The IPO of Johnson & Johnson’s consumer health business cost $22 per share, raising the deal to $3.8 billion. But after its IPO Thursday on the New York Stock Exchange, Kenvue’s share price rose 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, replacing its original plan of 151 million shares. Shares of the new consumer healthcare company opened at $25.53 and closed at $26.90.
2. One of the biggest US IPOs of the year
The consumer healthcare spin-off is proud to announce the “the world’s largest pure-play consumer healthcare company“ by revenue. Mongon, CEO of Kenvue, believes the company is a global leader at the intersection of consumer goods and healthcare.
So far in the year, 40 IPOs have raised a total of $2.4 billion. Kenvue’s IPO raised far more than any offering. The main underwriters for Kenvue’s IPO are Goldman Sachs, Bank of America and JPMorgan Chase.
The new company is valued at $41 billion, marking Kenvue’s stock debut. one of the biggest IPOs of 2023. The spinoff is also the largest IPO since electric carmaker Rivian went public in November 2021.
3. Kenvue is a dividend paying, high profile company
The spin-off from J&J offers investors a stable and lucrative company with strong cash flows in an era when those characteristics are considered premium in an otherwise weak stock market.
Aside from an impressive line of consumer goods, the J&J spin-off is also geographically diversified. Consumer-focused Kenvue has been profitable in each of its three years, with some of the most recognizable brands in its hegemony.
Ten Kenvue brands will have sales of more than $400 million in 2022. Kenvue reported 2022 revenue of $14.95 billion with net income of $1.46 billion on a pro forma basis, according to a preliminary prospectus filed with the Securities and Exchange Commission (SEC). became ).
“An attractive dividend policy that allows Kenvue to offer shareholders more returns.”
Kenvue expects to pay a quarterly dividend of about 20 cents per share at the end of the third quarter. The projected annual sales growth until 2025 is about 3-4 percent worldwide.
Why should you play it safe with the J&J IPO in Kenvue?
While Kenvue’s dramatic entry into the IPO has the market excited, here are a few red flags investors need to be aware of.
Kenvue’s IPO rocks the market.
1. J&J’s Talk Krebs lawsuits are risky liabilities
J&J’s notorious talc cancer lawsuits pose an adverse risk to the healthcare company. J&J is liable for thousands of allegations that its baby powder causes ovarian cancer in women, and J&J’s lawsuits fall within Kenvue’s spectrum.
According to the January IPO filing, Kenvue will only assume talc-related liabilities arising outside of Canada and the United States. However, the company warns that litigation not covered by the indemnity remains a significant risk for the newly formed Kenvue.
“Stated clearly and unequivocally that Johnson & Johnson has agreed to maintain all Talk-related liabilities – and to indemnify Kenvue against all costs arising out of litigation in the United States and Canada.”
– Erik Haas, Vice President of Litigation, J&J
In April, Johnson & Johnson proposed an $8.9 billion settlement to plaintiffs, subject to bankruptcy court approval. So Kenvue will also face $8.9 billion in total debt.
2. Tough competition and less upside potential
From industry giants to private label brands, there is no shortage of competition in the consumer health market. Unfortunately for investors, while Kenvue is profitable, it lacks the margins of its peers.
Profitability doesn’t equate to a good stock, as KVUE appears to be fully valued and doesn’t offer investors much upside. Kenvue’s shares are pitted against the likes of Bayer Consumer Health, Procter & Gamble, L’Oreal, Unilever, Kimberly Clark, and Colgate-Palmolive.
Kenvue has not translated its high brand recognition into greater profitability and ranks last on the list of return on invested capital (ROIC) among contemporaries.
3. Public shareholders have no rights
Johnson & Johnson will continue to have supremacy 92 percent of voting rights in Kenvue following its IPO. This suggests that the new public shareholders will have minimal control over stakeholders’ decision-making rights.
“Kenvue is focused on what it does best: serving customers with the portfolio of brands.”
– Mongon on liabilities
In short, the IPO won’t grant investors any corporate governance or voting rights even after they’ve digested some of their money.
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