The trigger
Since around July the stock has been dropping from 22$ to current 15$. The administration proclaimed that Tylenol is a potential root cause of autism in unborn babies on September 22, although it is likely that insiders knew and traded the stocks before that (Buy the rumor, sell the news…). Without getting political, we can do an analysis assuming that everything the administration mentioned is correct and Tylenol does indeed increase the chance of Autism in unborn babies.
The thesis
Let’s assume the worst case scenario. Let’s structure the thought process of my thesis on KVUE:
-
Pregnant women will stop taking Tylenol and rely on alternatives such as Aspirin or Ibuprofen, which come with their own series of side effects. At any given time, ~3.9% of US Population is pregnant. Assuming the worse case, and that pregnant women are consuming Tylenol with the same frequency as the rest of the population, we can see a potential worst case drop in sales of ~4% if all of them stop taking it.
-
Short term we could also see a drop in sales due to potential customers remembering the proclamation and deciding not to buy it. This effect is likely to be short lived, as the current administration consistently publishes explosive proclamations after another, which are unlikely to stick with their constituents simply due to sheer volume (noise). Hence, let’s assume another 5% of the population (~16 million Americans) ALSO get influenced
-
There will be also consequences for Kenvue in terms of lawsuits, which are already piling up. Class action lawsuits/FTC compliance/Monopoly investigations by DOJ… are usually overreacted to (see Google/Amazon/Apple in 2025) and usually end up in a minor slap on the wrist for the company. Even so, most often than not these lawsuits end up in a discrete loss and do not affect long term earning power of the company, and negative publicity effects are usually short lived. Let’s add the equivalent of another 10% drop in Tylenol revenue to reward, through class action, the potentially affected children of pregnant women (a small percentage of 3.9% of US population at any given time, going back a couple of years in time).
-
Let’s add them up and round upwards the potential negative impact and we can see a drop of ~20% on sales and revenue from Tylenol for Kenvue. Math is heavy in assumptions by now though, I think all numbers are on the higher end and superficially calculated. The reason not to get into too much details and just inflate the potentially negative impact is just to show that even in the worst case scenarios the market has still overreact to Tylenol’s news.
Worst case negative impact
We have a ~20% drop in Tylenol revenue. Hence, the stock should have dropped ~20%. It dropped 30%. But there’s a catch still, Tylenol is just part of Kenvue, not the whole revenue pipeline. From their own website:
Built on more than a century of heritage, our iconic brands, including Aveeno®, BAND-AID® Brand, Johnson’s®, Listerine®, Neutrogena®, and Tylenol®
If we read Kenvue’s most recent report we also get a glance at how their revenue is earned, with ~1/3rd out of “Essential Health”
I could not find a breakdown per product/brand, so we’ll have to assume the worst case, that Tylenol is the full “Essential health” category. Hence, so far we have 20% drop in one third of their sales, leading us to a 20%/3 ~= 6.66% drop in revenue, short term before all of this is forgotten/class lawsuits are paid, and ~ 5%/3 ~= 1.66% long term.
Is the stock undervalued?
That is very difficult to answer. I am no expert at valuing pharmaceutical and self-care products, and my Valuation techniques are very superficial. My investment technique is to assume the market is right in pricing most often but that it does react very emotionally to big negative news (Covid, Tariffs, Wars…). Hence, assuming the price Kenvue had before this news was the appropriate one, we can see that the markets have had a overreaction, bringing the stock down far more than what the negative impact of these news could reasonably affect it. It may stay down for a longer time AND there may be other factors that could also affect it in the future, hence never recovering. However, it does seem that it is trading bellow its intrinsic value. I have decided to buy and I hold ~5% of my investment portfolio in this stock. At the time I invested, I put ~30% of my available cash in this investment.