Kenvue's Earnings Beat Provides Temporary Relief Amid Unresolved Merger and Regulatory Risks

What happened

Kenvue's stock rose on February 18, 2026, after reporting earnings that surpassed expectations, offering a short-term boost to investor sentiment. However, this positive momentum is tempered by ongoing concerns over looming merger costs and risks tied to the pending acquisition by Kimberly-Clark. The DeepValue report underscores that the deal's closure, expected in the second half of 2026, remains contingent on foreign regulatory approvals, with no visible progress yet, posing a timing risk. Additionally, the company faces near-term threats from potential FDA acetaminophen pregnancy warnings that could depress Tylenol sales and from a Skin Health and Beauty segment hovering near impairment. Thus, while earnings outperformance is notable, it does not address the fundamental vulnerabilities that keep the investment case precarious.

Implication

The earnings beat may support Kenvue's stock price temporarily, but it does not resolve the core risks that could derail value. Foreign regulatory approvals for the merger are still pending, and any delays beyond the stated 2H26 close could expose the standalone business to tariffs and competitive pressures. FDA actions on acetaminophen labeling threaten to reduce demand for Tylenol, a key profit driver, while increasing litigation overhangs. The Skin Health and Beauty segment remains fragile, with a fair value buffer of only about 10%, risking impairment if market share losses persist. Therefore, cautious investors should await clearer signs of regulatory progress and segment stabilization before considering an entry, as the current setup lacks a margin of safety.

Thesis delta

The earnings beat does not shift the underlying investment thesis that Kenvue is a deal-timing proxy with more downside catalysts than upside in the next 6-12 months. Short-term earnings momentum is overshadowed by unresolved foreign approval risks and potential FDA labeling changes that could directly impact demand. Consequently, the 'WAIT' rating and cautious stance remain appropriate until observable de-risking occurs.