Is Kimberly-Clark Stock A Better Pick Over Its Industry Peer?

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Kimberly-Clark

We believe that Kimberly-Clark stock  (NYSE: KMB) is a better pick than its industry peer Procter & Gamble stock (NYSE: PG). Kimberly-Clark is trading at 2.1x trailing revenues compared to 4.2x for P&G. Investors have assigned a higher multiple to P&G stock due to its superior revenue growth, profitability, and better financial position, as discussed below.

If we look at stock returns, Kimberly-Clark, with 6% returns in the last twelve months, has fared better than P&G, down 5%, and the broader S&P 500 index, down 13%. There is more to the comparison, and in the sections below, we discuss why we believe KMB is a better pick over PG. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Kimberly-Clark vs. Procter & GambleWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. P&G’s Revenue Growth Is Better

  • Both companies posted sales growth over the last twelve months. Still, Kimberly-Clark’s revenue growth of 3.8% is slightly higher than 2.5% for P&G.
  • However, if we look at a longer time frame, P&G fares better, with its sales rising at an average annual growth rate of 5.8% to $80.2 billion in 2022, compared to $67.7 billion in 2019, while Kimberly-Clark saw its sales grow at an average rate of 3.0% to $20.2 billion in 2022 vs. $18.5 billion in 2019.
  • Kimberly-Clark produces primarily paper-based consumer products, manufacturing sanitary paper products and surgical & medical instruments.
  • The Personal Care segment made up around 53% of the company’s sales in 2022, contributing $10.6 billion to total revenue.
  • The company is benefiting from better price realization for its products while volumes have trended lower in the recent past.
  • P&G’s largest segment is Fabric & Home Care, contributing around 35% of the company’s revenues. It has also seen a steady rise in sales over recent years. In fiscal 2022, the company reported a 5% rise in total sales, driven by a 2% growth in unit volume.
  • However, in its latest quarter, P&G reported a 1% decline in reported sales, primarily due to forex headwinds. Organic sales grew 5%, driven by better price realization, but shipment volume declined.
  • Given the challenging environment of high inflation, rising interest rates, a strengthening U.S. dollar, and the economy feared to go into recession, the volume growth for both Kimberly-Clark and P&G will likely be adversely impacted in 2023.
  • Our Kimberly-Clark Revenue Comparison and Procter & Gamble Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, both companies are expected to see similar revenue growth in the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 1.6% for both Kimberly-Clark and P&G, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. P&G Is More Profitable

  • P&G’s operating margin of 22.2% over the last twelve months is better than 14.6% for Kimberly-Clark.
  • This compares with 8.9% and 17.1% figures in 2019, before the pandemic, respectively.
  • If we look at the recent margin growth, both are comparable, with the last twelve months vs. last three-year margin change at -0.9% for Kimberly-Clark and a -1.0% change for P&G.
  • P&G’s free cash flow margin of 18.2% is also higher than the 13.5% for Kimberly-Clark.
  • Our Kimberly-Clark Operating Income Comparison and Procter & Gamble Operating Income Comparison dashboards have more details.
  • Looking at financial risk, P&G fares better, with its 10% debt as a percentage of equity lower than 20% for Kimberly-Clark, and its 6% cash as a percentage of assets is also higher than 2% for the latter, implying that P&G has a better debt position, and has more cash cushion.

3. The Net of It All

  • We see that P&G has demonstrated better revenue growth, is more profitable, and has a better financial position. On the other hand, Kimberly-Clark is available at a comparatively lower valuation multiple.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Kimberly-Clark is the better choice.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 9% for Kimberly-Clark over this period vs. a 2% expected return for P&G stock, implying that investors are better off buying KMB over PG, based on Trefis Machine Learning analysis – Kimberly-Clark vs. Procter & Gamble – which also provides more details on how we arrive at these numbers.

While KMB stock may outperform PG stock in the next three years, it is helpful to see how Kimberly-Clark’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Citrix Systems vs. Procter & Gamble.

With higher inflation and the Fed raising interest rates, among other factors, KMB stock has fallen 6% this year. Can it drop more? See how low Kimberly-Clark stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
KMB Return 2% -6% 12%
PG Return 5% -5% 71%
S&P 500 Return -1% 3% 76%
Trefis Multi-Strategy Portfolio -3% 4% 226%

[1] Month-to-date and year-to-date as of 3/24/2023
[2] Cumulative total returns since the end of 2016

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