Johnson & Johnson ‘s (JNJ) consumer-health unit Kenvue (KVUE) soared greater than 22% on its first day of trading Thursday, bringing the Club holding one step closer to completing its business separation. The planned split, which is about for later this yr, is in the very best interest of shareholders of each the soon-to-be-solo Kenvue operations and the brand new pharma and medtech-focused J & J. Kenvue closed its debut session at nearly $27 per share, giving the maker of Tylenol, Band-Aid and other well-known consumer products an implied valuation of greater than $50 billion. J & J raised $3.8 billion in Kenvue’s initial public offering, selling 172.8 million shares at $22 each. J & J had previously expected to sell 151 million shares between $20 and $23 apiece. J & J will own slightly below 91% of Kenvue when the IPO is officially complete in the approaching days, or 89.6% if the investment banks that underwrote the offering exercise their full choice to sell additional shares. J & J intends to finish the Kenvue separation by the tip of 2023, pending market conditions. The remaining J & J will consist of its pharmaceutical and medical technology divisions, which accounted for 84% of the corporate’s total revenue of $94.94 billion revenue in 2022. Here’s what else J & J shareholders should find out about Kenvue’s IPO. Why don’t we own any Kenvue yet? Will we ever? As of Thursday, the Club continues to own 625 shares of Johnson & Johnson and 0 Kenvue. The rationale? J & J selected to divest Kenvue in a two-step process that begins with something often known as an equity carve-out . This primary step is what’s played out with Kenvue’s listing on the Recent York Stock Exchange. J & J created a standalone entity, Kenvue, for its consumer health division; then sold a small piece of it to institutional investors; and in the method raised capital. In theory, J & J could have divested Kenvue without an IPO. The corporate could’ve done a conventional spin-off, where it just gives its shareholders stakes in Kenvue on a proportional basis to their J & J ownership. One other alternative would have been to provide investors the choice to exchange their J & J shares for Kenvue in what’s often known as a split-off. J & J, which continues to be run by CEO Joaquin Duato, definitely selected a smart route because Kenvue is such a high-quality firm. Because the demand for the IPO demonstrated, investors clearly were willing to pay up. For now, it is not exactly clear how J & J will go in regards to the second step of this divestiture. But whatever happens, it must be our probability, as J & J shareholders, to directly own Kenvue shares. J & J could distribute its remaining Kenvue shares to investors in a way that mirrors the spin-off process outlined above, which might guarantee that we get a slice of the corporate. J & J could also offer its investors the chance to exchange their J & J shares for a stake in Kenvue. On this scenario, we’d have the choice to relinquish some, all or none of our J & J shares. We’ll must see which option J & J chooses. But generally speaking, we’re intrigued by the prospect of owning each J & J for its faster-growing medtech and pharmaceuticals and Kenvue, which has world-class brands. One other thing to love, Kenvue is planning a quarterly dividend of 20 cents per share to be paid out starting within the third quarter. Kenvue CEO Thibaut Mongon said Thursday he understands J & J’s wealthy dividend history — six a long time of annual increases — and the importance many investors place on the quarterly payout. He said Kenvue will generate durable money flows to support the dividend. For its part, Johnson & Johnson in April increased its quarterly dividend by 5.3% to $1.19 per share. What happens to the $3.8 billion raised? Johnson & Johnson receives the $3.8 billion raised within the IPO, the biggest deal of its kind since November 2021, when electric vehicle maker Rivian (RIVN) generated proceeds of $11.9 billion . Shares of J & J have lost 8% yr thus far, closing Thursday at $162 each. The primary 2½ months of 2023 were rough for the stock. But since its recent low of around $151 in March, shares have gained greater than 7%. We last bought J & J on March 7 — 25 shares at just a few dollars above that March bottom. JNJ 1Y mountain Johnson & Johnson’s stock price over the past 12 months. What does Kenvue’s listing mean for J & J’s stock? Investors have had ample time to arrange for the Kenvue separation — plans were first announced in November 2021 — and factor that into their evaluation of J & J. Actually, our optimism across the breakup was a giant reason we bought into J & J nearly a yr ago . So, big picture, it is a positive for J & J shareholders that this value-creating plan is progressing. Unfortunately, nothing about Kenvue’s listing Thursday changes the most important overhang on J & J’s stock price: the shortage of a resolution to outstanding talc litigation claims. J & J is maintaining those liabilities within the U.S. and Canada. In early April, J & J’s put forth its latest proposal to finish the yearslong court fight within the U.S., offering to pay $8.9 billion over the subsequent 25 years to resolve current and future talc claims. J & J continues to argue against claims that its baby powder and other talc products caused cancer lack merit. A federal judge temporarily halted many of the roughly 40,000 lawsuits on April 20, giving J & J time to secure enough support from plaintiffs for the proposed settlement to be enacted. We’re hopeful a finalized resolution to the talc overhang arrives sooner quite than later, enabling investors to sharpen their deal with J & J’s underlying business fundamentals and worry less about legal matters. Despite the stock’s underperformance in 2023, those fundamentals look quite strong to us, which is why Jim Cramer said Thursday he’d buy J & J here . Some investors could also be wondering whether J & J’s stock price can be adjusted to reflect the Kenvue separation. The reply isn’t yet. Bear in mind: For now, J & J still owns the overwhelming majority of Kenvue, so J & J’s market value will still reflect the worth of each entities. “Take a look at it as a complete company today, knowing that [roughly] 10% doesn’t belong to J & J,” explained Cantor Fitzgerald analyst Louise Chen, who has a buy rating and maintains a $215 price goal on J & J. “As they undergo the steps of selling down their stake — and the best way they are going to do it — then I believe valuation comes more into play,” she told CNBC. What’s to love in regards to the Kenvue separation? J & J’s decision to separate itself into two entities should profit each groups of shareholders over time. The businesses must be more focused and efficient, with management’s time and investments directed toward what each firm needs to succeed in its maximum potential. We predict this is very helpful for J & J. So does Cantor Fitzgerald’s Chen. “It gives the corporate more resources and energy to deal with pharma and medtech, which were the higher-growing business anyhow. That is why I feel prefer it is smart,” Chen said, adding that changing market dynamics on the consumer-product side require investment to remain competitive. “That might take away from the primary business,” she said. “Their interests are only not as much aligned anymore.” Kenvue’s Mongon told an analogous story to CNBC, saying the corporate’s journey as a separate, publicly traded entity begins from a “position of strength.” Kenvue’s 22,000 employees, he said, are actually concerned with “serving one consumer, one option to win on this industry.” (Jim Cramer’s Charitable Trust is long JNJ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked a few stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Kenvue Inc. Johnson & Johnson’s consumer-health business, trading information is displayed on a screen throughout the company’s IPO on the Recent York Stock Exchange (NYSE) in Recent York City, U.S., May 4, 2023.
Brendan Mcdermid | Reuters
Johnson & Johnson‘s (JNJ) consumer-health unit Kenvue (KVUE) soared greater than 22% on its first day of trading Thursday, bringing the Club holding one step closer to completing its business separation. The planned split, which is about for later this yr, is in the very best interest of shareholders of each the soon-to-be-solo Kenvue operations and the brand new pharma and medtech-focused J&J.