Johnson & Johnson: Kenvue IPO Raises $4 Billion, Setting the Stage for Full Divestment Later in 2023

JNJ Stock at a Glance

• Fair Value Estimate: $164.00
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Wide

JNJ Update

Johnson and Johnson JNJ raised close to $4 billion by selling almost 10% of its consumer business called Kenvue through an initial public offering. We expect J&J will divest the remaining Kenvue KVUE portion later in the year likely through a spinoff or split off. The implied valuation of close to $40 billion for Kenvue is slightly lower than valuations for similar companies, but we don’t expect any major fair value estimate changes to J&J based on the initial partial sale of the unit.

From a competitive advantage perspective, we don’t expect the divestment of Kenvue to have a major impact on J&J’s wide moat. J&J derives close to 90% of its profits from the drug and device businesses, so the loss of the consumer business has less of an impact on profits and competitive positioning. Also, with very limited synergies between the consumer group and remaining drug and device businesses, we don’t expect the Kenvue divestment to significantly impact the remaining J&J operations. The strong intangible assets in the pharma business and switching costs in the device segment (along with some intangible assets, as well) look intact.

Following the full divestment expected later this year, the stand-alone Kenvue represents a well-positioned consumer healthcare company with a portfolio of strong branded products. The leading positions in beauty, over-the-counter medicines, baby care, and oral care should support 4% annualized growth over the next three years. We expect Kenvue to be able to largely pass along inflationary costs through price increases based on strong brand power across its product portfolio. On the talc litigation, we expect the overall costs to remain with both Kenvue and the remaining J&J.