We believe that Kimberly-Clark stock (NYSE: KMB) and its industry peer Colgate-Palmolive stock (NYSE: CL) may offer little returns in the next three years. KMB is trading at 2.2x trailing revenues compared to 3.4x for CL. Investors have assigned a higher multiple to Colgate-Palmolive stock due to its superior revenue growth and better financial position, as discussed below.
If we look at stock returns, Kimberly-Clark, with 0% returns this year, has fared better than Colgate-Palmolive, down 4%, and both have underperformed the broader S&P 500 index, up 14%. There is more to the comparison, and in the sections below, we discuss the potential returns for KMB and CL. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Kimberly-Clark vs. Colgate-Palmolive: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Colgate-Palmolive’s Revenue Growth Is Better
- Colgate-Palmolive’s revenue growth has been better, with a 4.6% average annual growth rate in the last three years, compared to 3.0% for Kimberly-Clark.
- 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.
- Colgate-Palmolive is a leading manufacturer and distributor of household, health care, personal care, and veterinary products in global markets. It derives around 45% of its revenue from oral care products.
- It has also seen its sales rise over the recent quarters based on pricing growth, partly offset by volume decline and forex headwinds. This trend is expected to continue in the near term.
- Our Kimberly-Clark Revenue Comparison and Colgate-Palmolive 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 Kimberly-Clark and 1.7% for Colgate-Palmolive, 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. Both Have Similar Operating Margins
- Kimberly-Clark’s reported operating margin slid from 15.7% in 2019 to 12.9% in 2022, while Colgate-Palmolive’s fell from 21.0% to 14.8% over the same period.
- Looking at Kimberly-Clark’s operating margin of 13.6% aligns with 13.2% for Colgate-Palmolive.
- Our Kimberly-Clark Operating Income Comparison and Colgate-Palmolive Operating Income Comparison dashboards have more details.
- Kimberly-Clark’s free cash flow margin of 15.5% also aligns with 15.8% for Colgate-Palmolive.
- Looking at financial risk, Colgate-Palmolive fares better, with its 14% debt as a percentage of equity lower than 19% for Kimberly-Clark, and its 5% cash as a percentage of assets is also higher than 3% for the latter, implying that CL has a better debt position and more cash cushion.
3. The Net of It All
- We see that Colgate-Palmolive has demonstrated better revenue growth and 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 both will offer little returns in the next three years and can be avoided for better picks in the broader markets. Our Better Bet Than KMB Stock dashboard offers superior choices over KMB in the S&P500, including ABBV, and PFE, among others.
- If we compare the current valuation multiples to the historical averages, Colgate-Palmolive fares better. Kimberly-Clark’s stock trades at 2.2x trailing compared to its last five-year average of 2.4x, and Colgate-Palmolive stock trades at 3.4x trailing revenues vs. the last five-year average of 3.9x.
- Our Kimberly-Clark (KMB) Valuation Ratios Comparison and Colgate-Palmolive (CL) Valuation Ratios Comparison have more details.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 7% for Kimberly-Clark over this period vs. an 8% expected return for Colgate-Palmolive stock, based on Trefis Machine Learning analysis – Kimberly-Clark vs. Colgate-Palmolive – which also provides more details on how we arrive at these numbers.
While KMB and CL stock may offer little returns 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.
With higher inflation and the Fed raising interest rates, among other factors, KMB stock hasn’t seen any growth this year. Can it drop from here? 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? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.
|S&P 500 Return||5%||14%||95%|
|Trefis Multi-Strategy Portfolio||6%||16%||267%|
 Month-to-date and year-to-date as of 6/15/2023
 Cumulative total returns since the end of 2016