Paul R. La Monica

Shares of Kenvue, the maker of Tylenol and Benadryl, could be a remedy for investors left aching by the stock market's selloff, analysts at Wolfe Research say.

The company has struggled since it was spun off from Johnson & Johnson, a leader in Big Pharma and component of the Dow Jones Industrial Average. The stock is down slightly since it began trading on its own in 2023.

But the Wolfe Research team thinks that Kenvue, which also makes drugstore staples such as Zyrtec, Neutrogena and Listerine, is a Buy at current levels. In a research note Thursday, they argued that the stock is relatively cheap, noting that Kenvue is is "the world's largest pure-play consumer health business with a diverse portfolio of brands."

Kenvue stock trades for about 18 times the per-share earnings expected for 2026, compared with the multiple of 21 for its consumer healthcare peers. At a price/earnings ratio of 21, the stock would be trading at around $26, 20% higher than current levels.

But that might wind up being a conservative estimate. The Wolfe analysts argue that if Kenvue is able to revive some of its struggling skin- care and beauty businesses, it would be able to boost its earnings targets for next year, allowing the stock to rise even if the market didn't assign if a higher P/E multiple. In that turnaround scenario, the stock could be worth $27 to $33.

It also doesn't hurt to have activist investors involved. Starboard Value now owns more than 1% of the shares. Starboard reached an agreement with Kenvue in March, avoiding a long proxy fight and winning a seat for Starboard CEO Jeffrey Smith on the company's board.

And there have been reports that another activist firm -- TOMS Capital -- has amassed a stake in Kenvue as well. That could push Kenvue to make more investor-friendly moves.

"With increasing pressure from activists Starboard and TOMS Capital, we believe the company could evaluate strategic alternatives for a potential sale of non-core brands, which would unlock significant value for shareholders," the Wolfe analysts said.

Wall Street is largely taking a wait-and-see attitude, though. Only five of the 19 analysts who follow the stock rate it at Buy. The remaining 14 have it at Hold, but the Kenvue bulls think a turnaround is in the cards.

"Management acknowledges the urgency investors have been sensing. Whether that's a result of the activist or not, the nimbleness/quickness aligns, and it's been effective," said Piper Sandler analyst Korinne Wolfmeyer in a recent report, noting that the deal to add Smith to the board is a promising sign. She has a Buy on the stock and a target price of $27.

Analysts at Bank of America Securities also have a Buy on the stock, with a price target of $25. They say that that despite the weakness in the skin care segment, the rest of Kenvue's core health care brands should benefit from strong demand. The BofA analysts said that Kenvue "has best-in-class assets and we expect to see steady growth in sales and margin expansion over time."

If Kenvue and Smith are able to figure out a viable long-term plan to get growth back on track, then investors nursing their wounds with the stock might finally be able to rip off the Band-Aid -- another Kenvue product -- and begin to heal.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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April 10, 2025 14:48 ET (18:48 GMT)

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