RBC Lowers Kenvue Stock Rating Amid Concerns Over Skin Health & Beauty Business

Analysts at RBC Capital Markets have downgraded Kenvue stock, citing difficulties in the company’s Skin Health & Beauty segment, particularly related to the Neutrogena brand. The firm has kept its price target the same but adjusted the stock rating to Sector Perform from Outperform.

Following the downgrade, Kenvue’s shares experienced nearly a 1% decline in premarket trading.

Since its public debut in May 2023, Kenvue has faced ongoing challenges in its Skin Health & Beauty division, resulting in a loss of market share. While the Self Care and Essential Health segments have shown strong performance, Neutrogena—a key revenue driver for Kenvue—has suffered a notable decrease in US household penetration and demonstrated weak market share trends.

Analysts estimate Neutrogena represents at least a $1.5 billion brand, accounting for approximately one-third of the Skin Health & Beauty sales and nearly 10% of Kenvue’s total sales. Due to the struggles of Neutrogena in the US market, Kenvue has seen substantial share losses across categories such as acne treatments, facial moisturizers and cleansers, anti-aging products, sun care, and cosmetics.

RBC indicated that Kenvue’s competitors have taken advantage of Neutrogena’s decline, with brands like La Roche Posay, CeraVe, Hero, and Olay gaining market share at its expense. CeraVe, in particular, has resonated with younger consumers, utilizing social media influencers and platforms like TikTok, which has influenced Neutrogena’s market standing.

The outlook for Kenvue’s long-term performance from RBC falls below consensus estimates. Analysts forecast that the Skin Health & Beauty segment will continue to underperform compared to category growth through 2024 and into 2025. Their predictions for Kenvue’s organic sales and earnings per share for 2025 are more cautious than the consensus, indicating doubts about the segment’s recovery potential.

In terms of valuation, Kenvue’s stock is currently trading at a premium compared to historical levels and its peers in the Home and Personal Care industry. Analysts remarked that the prevailing valuation of the stock is nearing what they consider fair value. Without a notable improvement in the Skin Health & Beauty business, justifying further upside for Kenvue’s stock will be challenging.