Week in Review: Procter & Gamble, Unilever, Colgate-Palmolive and Kimberly Clark

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Procter & Gamble

Personal Care stocks fell during the week ended 12 December as Procter & Gamble (NYSE: PG), Kimberly-Clark (NYSE: KMB) and Colgate-Palmolive (NYSE: CL) fell by 1% each, while Unilever (NYSE: UL) dropped by 5%. On the other hand, the broader S&P 500 index fell by 2% during the week. Investors seem to be favoring P&G’s ongoing consolidation measures, driving the share price to an all-time high of $91.28 in intra-day trading during the week.

Estimated US Retail Sales data for October 2014 released by the US Census Bureau on 11 December shows a margin improvement over the previous year. October sales at supermarkets, and grocery and departmental stores expanded by 6% compared to the same month last year, while year to date growth stood at 9%. But the actual current consumer sentiment will emerge only from the holiday season data for November and December.

Below, we review the latest events in the personal care industry and the market performance of the above four companies in the week ended 12 December 2014.

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Procter & Gamble

P&G’s shares remained flat for most of the week but fell on Friday, ending the week at $89.55. The company recently announced the closure of its production facility in Augusta, Georgia, as part of its plan to streamline its North American operations. P&G plans to upgrade its existing major production facilities to manufacture a larger range of products, in contrast to the now closed facility in Augusta which was used to produce small items for its fabric care unit. The company’s share price has risen by 12% year to date, indicating investors’ approval of P&G’s ongoing consolidation strategy.

We have a price estimate of $70 for P&G, which is 22% lower than its current market price.

Unilever

Unilever’s shares slumped by 5% during the week, even as short interest decreased by 64% since October 31st. The company’s shares fell by 1% each on December 8 and 9, but suffered a hammering on Friday and fell by 3% in a single day to close at $40.29. The company’s under-performing foods business continues to weigh on its prospects despite the recently announced separation of its spreads business into a standalone unit. Unilever’s shares have remained lackluster this year, gaining only 3% so far on account of worries over its performance in Europe and the slowing growth in emerging markets.

We have a price estimate of $47 for Unilever, which is 16% higher than its current market price. We expect full year non-GAAP earnings per share of $2.14, compared to consensus estimates of $2.20.

Kimberly-Clark

Kimberly-Clark’s shares stayed flat during for most of the week before falling by 1% on Friday, but continue to trade near the all-time high of $116.78. The company completed the tax-free spin-off of its healthcare business into a standalone, publicly listed company in October, leaving the company with only its core personal care and tissues (consumer and professional) businesses.

Investors’ response to the strategy has remained muted, with shares rising only 2% since the completion of the spin-off. However, on the back of strong performance in international markets, Kimberly-Clark’s shares have shot up by 10% year-to-date.

We have a price estimate of approximately $112 for Kimberly-Clark, which is 1% lower than the current market price.

Colgate-Palmolive

Colgate-Palmolive’s shares ended the week at $68.57, down by 1% since the previous week. Unlike the other three personal care majors, Colgate-Palmolive has continued to be concentrated in its forte, the oral care market; and has not announced any plans to divest its non-core pet nutrition business. Nevertheless, the company’s shares have gained 8% in the year so far.

We have a price estimate of approximately $65 for Colgate-Palmolive, about 5% lower than the current market price. Our full year EPS estimate stands at $3.1, as against the consensus estimate of $2.9.

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