After Starboard, whose agitation at Pfizer so far seems to have moved very few people - see Pfizer, Inc. on this subject: A full-scale attack - it's now TOMS Capital's turn to enter the fray and call on Kenvue to change its strategy.

One immediate vector for improvement, for which the two activists are undoubtedly advocating, is to raise prices. It's true that, despite a portfolio of blockbuster brands - including Band-Aid, Johnson's, Listerine, Neutrogena and Tylenol - Kenvue's gross margin is significantly lower than that of comparables such as Haleon or Colgate.

The problem is that this tactic has already been in use for a number of years, since J&J began preparing to spin off its subsidiary. So far, it has only helped to keep operating profit in line by curbing inflation in the administrative cost structure, without really creating any additional gains.

MarketScreener analysts see another immediate vector for improvement: slashing stock option compensation, which is currently prohibitive at Kenvue, representing a cost item of $254m in 2024, or 8.6% of operating profit.

By way of comparison, stock option compensation over the period amounted to $102m at Haleon, or 3.2% of operating profit; and $135m at Colgate, or 3.2% of operating profit. On the latter, see Colgate-Palmolive Company: Blue chip on the US stock exchange.

A third potential vector for improvement would be to increase financial leverage to boost return on equity. In the absence of growth, Kenvue's stable sales coupled with very comfortable solvency ratios would make this option perfectly viable.

At this stage, however, the potential gain for those wishing to follow in the footsteps of the two activist funds seems limited. Since Starboard's involvement, Kenvue's valuation has recovered to fourteen times EBITDA.

Haleon, meanwhile, is valued at 15x EBITDA, and Colgate at 16x EBITDA.

https://www.marketscreener.com/quote/stock/KENVUE-INC-154055852/news/Kenvue-s-earnings-potential-appears-limited-49424195/