From Breakingviews - J&J carves itself up at a discount
The division that will become Kenvue is in a market that grows fairly slowly – the industry’s compound annual growth rate may be around 4% through 2025, according to the prospectus – but the company has steady cash flow that could be returned to investors. The drug and surgical businesses remaining with J&J are higher margin and potentially faster-growing, so perhaps the two firms will appeal to different sets of investors.
Litigation risk may dampen spirits. J&J is fighting off claims that talc-containing products caused cancer in users. Kenvue doesn’t have much to fear there, as nearly all these suits will stay with J&J. Yet Kenvue faces claims alleging pre-natal exposure to Tylenol caused autism in children. Whether that could balloon in cost,, or deflate like expected damages from antacid drug Zantac causing cancer has, is investors’ guess.
, for example, has an enterprise value-to-EBITDA multiple more than a quarter higher than Haleon's. So there’s room for Kenvue’s valuation to improve. Plus few firms have dared float in 2023, let alone ones that investors know well. Even the unknown at the former J&J company is better than the unknown elsewhere.
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