Despite a 20% rise from its low in March, at the current price of $134 per share, we believe Kimberly Clark stock (NYSE: KMB) has further upside potential. KMB stock has increased from $112 to $135 off the recent bottom, much less than the S&P which increased by over 60% from its lows. Further, the stock is still around 7% lower than its 2020 pre-Covid high of $145, and around 15% off its high of $158 this August. We believe that KMB stock could touch $160, crossing its previous high, rising almost 20% from its current level, driven by expectations of strong demand and steady Q3 2020 results despite the pandemic. Our dashboard What Factors Drove 19% Change In Kimberly Clark Stock Between 2018 And Now? has the underlying numbers behind our thinking.
The stock price rise since 2018-end came despite roughly flat revenues, which came in at $18.5 billion for both 2018 and 2019. However, as net margins rose from 7.6% in 2018 to 11.7% in 2019, due to falling pulp prices, net income jumped 50% from $1.4 billion to $2.2 billion. Combined with a 1% decrease in the outstanding share count, KMB’s earnings-per-share (EPS) jumped 55% from $4.05 in 2018 to $6.28 in 2019.
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KMB’s P/E (price-to-earnings) multiple dropped from 28x in 2018 to 22x by 2019 end, and is still hovering around the same level. We believe that the company’s P/E ratio has the potential to rise in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of Coronavirus, has meant that the need for personal hygiene products is at an all-time high, and tissues and wet wipes are something one definitely carries when stepping out of the house. This benefited KMB in Q3 ’20 (quarter ending September), where revenue came in at $4.68 billion vs $4.64 billion for the same period last year. EPS, too, surged to $2.00 from $1.41 as gross margins came in at 38.5%, up from 32.3% in Q2 2019. Further, KMB’s revenue over the past 9 months has come in at $14.4 billion vs $$13.9 billion for the same period last year, with EPS jumping to $5.31 vs $4.68, setting KMB up for a strong fiscal ’20, once Q4 results are announced in January.
We believe that with demand for tissues and tissue products to remain strong, demand for KMB’s products will stay strong in the medium term, driving up revenues, and if the company manages to keep expenses in check, profitability could rise at a similar rate. We expect this to drive up the company’s P/E multiple, and believe that KMB’s stock can rise almost 20% from current levels, past its 2020-high of $158.
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