Kimberly Clark Stock To Regain 2020 Highs?

KMB: Kimberly-Clark logo

Up around 15% from its low in March 2020, at the current price of $132 per share, we believe Kimberly Clark stock (NYSE: KMB) has significant upside potential. Kimberly Clark, a personal care and sanitary paper products manufacturer, saw its stock rise from $112 to $132 off the recent bottom, much less than the S&P which increased by around 70% from its lows. Further, the stock is down more than 15% from its mid-2020 high of $160. We believe that KMB stock could regain its recent highs, rising over 20% from its current level, driven by expectations of strong demand and strong full-year 2020 results. Our dashboard What Factors Drove 16% Change In Kimberly Clark Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The stock price rise came due to a 4% rise in revenue from $18.5 billion in FY 2019 to $19.1 billion in FY 2020. Net margins rose on the back of a drop in COGS (as pulp prices dropped) from 11.7% in 2019 to 12.3% in 2020. Combined with a roughly unchanged outstanding share count, earnings-per-share (EPS) rose around 10%, from $6.28 to $6.90.

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Kimberly Clark’s P/E (price-to-earnings) multiple rose from 18x in 2018 to 20x by 2019 end, but has since dropped to 19x currently. 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 increased the need for sanitary goods, like tissues and other personal hygiene products, driving up demand for Kimberly Clark’s products. This is evident from KMB’s recent full-year 2020 results, where revenue came in at $19.14 billion, up from $18.45 billion for the same period last year, a jump of almost 5%. The company was able to control COGS and other operating expenses, which drove net income to $2.35 billion, up from $2.16 billion, driving EPS up to $6.90 from $6.28.

We expect the continued strong demand for sanitation products to help drive the company’s revenue growth in the medium term, and if Kimberly Clark is able to continue controlling expenses, this could drive up the company’s P/E multiple, and we believe that Kimberly Clark stock can rise more than 20% from current levels, to its 2020 high of $160.

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