Kenvue Inc. is serving as a spearhead to reopen the US IPO market as gains by its publicly traded peers show that the company can buck the macro headwinds holding back other potential listings.
(Bloomberg) — Kenvue Inc. is serving as a spearhead to reopen the US IPO market as gains by its publicly traded peers show that the company can buck the macro headwinds holding back other potential listings.
The stocks seen as most similar to Johnson & Johnson’s consumer health unit, which is expected to debut May 5, have been outperforming the S&P 500 Index during the barrage of volatility events this past year that have kept the market for initial public offerings mostly shut.
In particular, advances by Advil-maker Haleon Plc and Lysol-manufacturer Reckitt Benckiser Group Plc are seen as a big reason why Kenvue’s deal is poised to become the first since September to raise more than $1 billion.
“It creates a greater tailwind for a new issue when peers are doing a lot better in terms of their stock prices,” Roth MKM analyst Rohit Kulkarni said in an interview. “Kenvue operates within a sector that has a tailwind from rising inflation. Valuations are much more feasible for the management team going public.”
Investors who hold stock in Kenvue’s high-flying peers are also more likely to take profits and move into the newly listed stock, he said.
While conglomerates like Bayer AG and Sanofi have consumer health units that could potentially be spun off, purer plays like Haleon and Reckitt are the closest publicly traded comparables to Kenvue, according to Kulkarni and Bloomberg Intelligence analyst Diana Gomes. Haleon is seen as similar because it was spun off from GSK Plc last year, while Reckitt’s health segment mostly consists of over-the-counter products. Haleon and Reckitt have climbed 7.5% and 9.1% this year, respectively, outpacing the 5.6% rise in the S&P 500.
Other valuation comparables include firms with consumer health-care businesses like Nestle SA, Procter & Gamble Co., L’Oréal SA, Unilever Plc, and Herbalife Nutrition Ltd., analysts at Spin-Off Research wrote in a note dated April 19. A valuation table published by Guggenheim also includes Colgate-Palmolive Co., Church & Dwight Co. and Kimberly-Clark Corp. Most of these stocks have also outperformed on a year-to-date or full-year basis.
Kenvue is likely to be valued similarly to these other consumer companies once the spinoff is complete, Guggenheim analyst Vamil Divan wrote in the note. He pointed to significant growth potential for the business’s iconic brands, including Tylenol, Band-Aid, Listerine and Nicorette.
“Kenvue’s brands have established deep connections with consumers and maintain positive relationships with health-care professionals, experts, and organizations to develop scientifically backed solutions,” Spin-Off Research wrote.
The momentum among Kenvue’s peers helps explain why this IPO is the first big one to move forward of late. But it doesn’t promise strong returns.
Kenvue has historically lagged behind peers in margin and revenue growth and will no longer enjoy the economies of scale, global access and bargaining power that come with being a part of J&J, Spin-Off said. Kenvue may also carry some liability risk from lawsuits against J&J.
US IPOs have raised just $4.1 billion this year, according to data compiled by Bloomberg, as most issuers try to wait out uncertainty around rising interest rates and a banking crisis that’s still rattling traders. The proceeds are 73% less than the roughly $15 billion raised in the year-earlier period and down 97% from $163 billion at this point in 2021.
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