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Johnson & Johnson is spinning off Kenvue, its consumer healthcare division, through an IPO next week. The $3B+ IPO would value the company at ~$40B. Kenvue would be the world’s largest pure-play consumer health company in the $369B industry. The company competes in self-care, skin care & beauty, and essential personal care products. Kenvue owns well-known brands including Tylenol, Band-Aid, Listerine, and Neutrogena among many others. Ten of its brands each had $400M or more in sales. Seven of its brands are market share leaders in their respective categories globally.
Kenvue has dominant brands within its categories. With a global CAGR of nearly 5% since 2019, consumer healthcare is a less economically cyclical growth industry. The secular growth of self-care underpins the industry. So do longer lifespans, increased consumer focus on wellness, and rising incomes. As part of Johnson & Johnson the consumer healthcare segment had growth rates that trailed the industry in recent years. There are reasons to expect an acceleration in growth as a stand-alone company.
Valuation dis-synergy at work. Consumer healthcare should see a higher valuation within Consumer Staples over time. Johnson & Johnson is not the first company to divest its consumer healthcare segment seeking a higher valuation. Consumer Staples companies that enjoy similar growth rates and brand dominance trade at premium valuations compared to Johnson & Johnson. At the same time, a faster growing pharmaceutical and medical device company could be valued at a higher multiple by healthcare analysts without the drag on the growth rate and margins. Kenvue’s IPO should bring more investor attention to consumer healthcare companies and their more visible, but lower growth rates.
M&A is in the future. We believe there will be a step-up in M&A activity in the sector with companies looking to fill in existing holes in their product lineup, enhance margins, exit orphan categories, and bolster market share in others. With independence, control over their own capital budgets, and having targets they have to deliver to the Street management teams in the new sector will be more active than they were when they were within larger healthcare companies. As slow-growing units within large companies, consumer healthcare business segments were leaned on for their cash flow. The sector did not have innovation, investment, or growth as a priority. Attractive cash flows will be redirected in the new sector.
Black Book Sections. We will have a company segment analysis, an evaluation of industry trends, an assessment of the talc lawsuits, a valuation framework, an industry comparison, and more.
