Is Kenvue Stock a Buy Now? | The Motley Fool

Parts of Kenvue (KVUE -1.44%) I received great joy on Monday, Oct. 21, due to Starboard Value. A venture capitalist recently boosted the stock by announcing a stake in the consumer goods giant behind popular brands like Tylenol and Listerine.

Despite recent struggles, Kenvue’s stock is down about 15% since it went public. Johnson & Johnson last in May. The loss is very annoying due to the benchmark S&P 500 the index rose 43% over the same period.

Is it time to buy this dividend payer? Here’s a closer look at Kenvue to see if aligning with Starboard could be a smart move for everyday investors.

Why Kenvue stock is down

Stagnation is weighing on Kenvue stock. Currently, management is predicting sales growth of between 1% and 3% this year. Specifically, adjusted earnings are expected to decline from $1.29 per share in 2023 to a range between $1.10 and $1.20 per share in 2024.

Before Starboard announced its share, Kenvue’s plan to improve profitability included raising costs. Management was planning to increase its marketing spend by 15% at the beginning of 2024. Unsatisfied with the progress so far, management said that it will raise its marketing spend even more. This August. Currently, marketing spending is expected to increase by 20%, or $400 million this year.

Why Wall Street and Starboard are strong

A century ago, Johnson & Johnson revolutionized the health care industry with products like Band-Aids and Listerine. With the latest products like Tylenol and Neutrogena to promote them, Starboard thinks that the company should spend more money on marketing, to make strong arguments.

For decades, consumer health has taken a backseat to Johnson & Johnson’s rapidly growing medical technology and pharmaceutical divisions. By 2022, consumer health sales had dropped to just 16% of total revenue.

With leading brands in skin care, beauty, health and pharmaceuticals, Starboard argues that private labels use a lower percentage of Kenvue’s products than anyone in its peer group. .

As a sponsor investor, Starboard is committed to advocating for Kenvue’s skin improvement, health and beauty. It lost market share with organic sales improving by just 0.5% from 2019 to 2023. Industry-wide sales of face and body care products, which Kenvue sells the most, are expected to rise by 4.5% annually until 2030.

Starboard analysts aren’t the only Wall Streeters who believe Kenvue can excel. Recently, Jeffries, an investment bank, named Kenvue a franchise option. Its analysts think that increasing investment in its consumer health products could lead to annual revenue growth in the mid-single digits and double-digit earnings growth by 2026.

Time to buy?

At current prices, you can get Kenvue shares at 20.3 times management’s earnings expectations for 2024 or about 20 times Wall Street’s expectations for the next 12 months.

KVUE PE Ratio (Forward) data by YCharts.

Compared to the company’s peers, 20 times earnings expectations are cheap. Church and Dwightwhich owns the Arm & Hammer brand, trades at 29.9 times earnings expectations.

While Kenvue shares look like a bargain right now, investors should be aware that they may never outperform the S&P 500 index. Starboard’s performance will be considered successful if the total revenue is grow by mid-single-digit percentages, not jumps and bounds.

You probably won’t get great benefits from Kenvue, but there is also a chance that you will lose money in the long run. Even if an unexpected disaster pulls the rug out from under the stock market, shareholders will still receive a quarterly dividend.

At current prices, Kenvue offers a healthy yield of 3.6%, and raising annual dividends is a priority. It may not be a strong performer in your portfolio in the short term, but patient investors who buy now have a better chance of coming out ahead.

Cory Renauer has no position in any of the products mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls Kenvue. The Motley Fool has a publicity strategy.