Has Kimberly Clark Stock Peaked At $144?

-4.76%
Downside
129
Market
123
Trefis
KMB: Kimberly-Clark logo
KMB
Kimberly-Clark

Kimberly Clark stock (NYSE: KMB) is up around 6% since the beginning of this year, and at the current price of around $144 per share, we believe KMB stock has a significant downside.

Why is that? Our belief stems from the fact that KMB stock remains about 29% higher than the low seen in early 2018. Our dashboard What Factors Drove 29% Change In Kimberly Clark Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Relevant Articles
  1. Should You Pick Kimberly-Clark Stock At $120 After A Downbeat Q4?
  2. Is Kimberly-Clark Stock Fully Priced At $120?
  3. Which Is A Better Pick – Kimberly-Clark Stock Or IDEXX Laboratories?
  4. Which Is A Better Consumer Defensive Pick – Kimberly-Clark Or CL Stock?
  5. Is Kimberly-Clark Stock A Better Pick Over Its Industry Peer?
  6. Steady Revenue Growth Has Not Been Reflected In Kimberly-Clark’s Stock Price – Here’s Why

Kimberly Clark is an American multinational personal care corporation that mainly produces paper-based consumer products. KMB stock’s rise over the past 2 years came despite roughly unchanged revenues and a 5.3% drop in net income. Net Margins slumped from 12.7% in 2017 to 7.8% in 2018 due to rising pulp prices which led to an increase in COGS (gross margins fell from 35.9% in 2017 to 30.2% in 2018). Further, pulp price dropped in 2019, leading to a jump in gross margins to 32.7%, which combined with lower taxes and operating expenses, led to net margins rising to 11.9%. Overall, net income dropped from $2.28 billion in 2017 to $2.16 billion in 2019, which combined with a 3% drop in outstanding share count led to a 2.5% drop in earnings on a per share basis.

Finally, KMB’s P/E ratio rose from 17x at the end of 2017 to 22x at the end of 2019. While KMB’s P/E has since risen marginally to 23x, given the volatility of the current situation, there is possible downside for KMB’s multiple, especially when compared with previous years: 17x at the end of 2017, and 22x as recently as 2019.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus has meant there is actually higher demand for tissue and hygiene products. However, KC professional (the segment that includes revenues from the sale of its products to companies and offices) revenues could take a hit, as people are working from home. In addition, there have likely been supply disruptions across many countries from the global Coronavirus crisis. The mixed impact this could have on the company is still not clear, and we believe KMB’s Q2 results later in July will paint a clearer picture.

Regardless, if there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 22.9x to around 19.5x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to as low as $120.

While Kimberly Clark stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That Could Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams