Investing.com -- Jefferies believes investors should take advantage of recent weakness in Kenvue (NYSE:KVUE) stock, reiterating a Buy rating and calling the company a “self-help transformation story” after a 6% share decline on Tuesday.
“Recent management commentary on April destocking, a cautious consumer, and early seasonal trends appear to be incremental negatives,” Jefferies analysts acknowledged. “But, some of these factors were known and guidance was not changed.”
The firm said inventory reductions at retailers in April were already disclosed during Kenvue’s first-quarter results.
“Working capital management to deal with tariffs makes sense but eventually, shipments will align with consumption,” the analysts said, noting U.S. retail trends have recently returned to growth.
Skin care is said to be showing early signs of recovery, driven by Neutrogena.
“The shift in promo strategy accounts for over 60% of the brand’s lift in sales,” Jefferies wrote, while allergy season trends are positive: sales of OTC allergy products like Zyrtec and Benadryl are reportedly 4.5% from last year, and Visine sales surged 36% due to a competitor’s supply issues.
Jefferies also highlighted Kenvue’s reinvestment push, with marketing, R&D and capital spending growing 11% in 2024.
That reinvestment rate is expected to rise further in 2025, reaching ~92%, in line with industry averages. “Higher reinvestment rates are correlated with better returns,” Jefferies noted, adding that signs of an inflection should emerge in the second half.
The firm sees valuation upside, pegging Kenvue’s fair value at $27 per share. “As Kenvue’s growth transformation unfolds, we think shares re-rate closer to the peer average 14–15x EBITDA or 19–20x EPS,” Jefferies said.