Kenvue IPO: Profitable Company, Expensive Stock

Kenvue (KVUE), the consumer health spin-off from Johnson & Johnson
JNJ
, is expected to start trading May 4, 2023 at a ~$40 billion valuation. At the midpoint of its IPO price range, Kenvue earns a neutral rating. Note that most IPOs earn a unattractive or very unattractive rating.

Kenvue has been profitable in each of the three years for which I have financial data. With some of the most well-known consumer brands in its stable, it will likely be profitable for many years to come. However, the company lacks the margins of its competitors, and a profitable company is not always a good stock. At its expected valuation, KVUE looks fully valued and does not provide investors with much upside potential, as I’ll illustrate with my reverse discounted cash flow (DCF) model below.