Shares of Kenvue (ticker: KVUE) have experienced a recent decline as concerns over lawsuits related to its pain reliever Tylenol have arisen. However, some Wall Street analysts believe that the market's reaction is exaggerated and see a strong buying opportunity for this consumer health company.
Kenvue, which recently separated from Johnson & Johnson (JNJ), is facing lawsuits alleging that Tylenol has caused neurological disorders in children whose mothers took the medication during pregnancy. The lawsuits claim that the company is at fault for not providing a warning about the potential risks on the label of the bottle.
In response, Kenvue has stated that acetaminophen, the active ingredient in Tylenol, has been extensively studied and deemed safe by US health regulators and medical organizations.
Despite the legal concerns, J.P. Morgan analyst Andrea Teixeira believes that the recent decline in the stock presents an attractive buying opportunity. Teixeira rates the stock as Overweight and has set a $29 price target.
Teixeira stated, "We believe that the negative reaction in the stock, which is more of a sell-first-and-ask-questions-later approach, is disproportionate even when considering potential liability." She further emphasized that the valuation of the stock supports her view that now is an opportune time for medium and long-term investors to buy.
At present, Kenvue is trading at 16.5 times forward earnings, which is below the average of 18.7 times.
Deutsche Bank analyst Steve Powers shares a similar sentiment and has upgraded the stock from Hold to Buy with a $27 price target. In a research note, Powers highlighted that the legal risks have already been accounted for in the stock price and that it is currently oversold.
Powers commented, "KVUE is a high-quality company and has now become a liquid stock, joining the prestigious S&P 500. It possesses a portfolio of leading brands, a strong balance sheet, and significant opportunities for industry consolidation."
On Monday, shares of Kenvue saw a 3.9% increase, reaching $22.13.
In conclusion, while Kenvue grapples with lawsuits concerning Tylenol, analysts believe that the market's reaction is overblown and recommend purchasing the stock at its current discounted price.
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