Given its better prospects, we believe that IDEXX Laboratories stock (NASDAQ: IDXX) is a better pick over Kimberly-Clark stock (NYSE: KMB). Although these companies are from different sectors, we compare them because they have a similar market capitalization of around $40 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.
Interestingly, IDXX has had a Sharpe Ratio of 0.6 since early 2017, aligning with the 0.6 figure for the S&P 500 Index over the same period, but Kimberly-Clark’s Sharpe ratio of 0.0 is much lower. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Looking at stock returns, IDXX has fared much better with 12% gains this year than an 8% decline for KMB stock. The broader S&P500 index is up 16%. There is more to the comparison, and in the sections below, we discuss why we believe IDXX will offer better returns over KMB in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in this analysis.
- Is Kimberly-Clark Stock Fully Priced At $120?
- Which Is A Better Consumer Defensive Pick – Kimberly-Clark Or CL Stock?
- Is Kimberly-Clark Stock A Better Pick Over Its Industry Peer?
- Steady Revenue Growth Has Not Been Reflected In Kimberly-Clark’s Stock Price – Here’s Why
- Why Has Kimberly-Clark Stock Remained Flat Since Late 2017?
- Kimberly-Clark Stock Looks Unlikely To Sustain Its Streak
1. IDEXX’s Revenue Growth Is Better
- IDEXX’s revenue growth has been better, with a 12% average annual growth rate in the last three years, compared to 3% 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.
- IDEXX provides diagnostic, detection, and information systems for animal veterinary, livestock and poultry, water testing, and dairy markets.
- The Covid-19 pandemic resulted in an increase in pet ownership as people spent more time at home. Pet ownership in the U.S. rose to 70% of households in 2022 (vs. 67% in 2019).
- This has boded well for animal health companies, including IDEXX. The company is also expected to benefit from its new products, including a hematology analyzer – ProCyte – which can provide blood results in as quickly as five minutes.
- Our Kimberly-Clark Revenue Comparison and IDEXX Laboratories Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, IDEXX is expected to see faster 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 2% for Kimberly-Clark and 8% for IDEXX, 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.
2. IDEXX Is More Profitable
- Kimberly-Clark’s reported operating margin slid from 15.7% in 2019 to 12.9% in 2022, while IDEXX’s operating margin expanded from 23.0% to 26.7% over the same period.
- Kimberly-Clark’s operating margin of 11.0% in the last twelve months is much lower than 29.9% for IDEXX.
- Our Kimberly-Clark Operating Income Comparison and IDEXX Laboratories Operating Income Comparison dashboards have more details.
- Looking at financial risk, IDEXX fares better, with its 3% 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 IDEXX has a better debt position and more cash cushion.
3. The Net of It All
- We see that IDEXX has seen superior revenue growth, is more profitable, and has a better financial position. This also explains the higher P/S ratio of 11x for IDXX vs. 2x for KMB.
- Now, looking at prospects using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe IDEXX will offer better returns compared to Kimberly-Clark over the next three years.
- Looking at recent financials, IDEXX appears more appealing. Given the higher inflation and other challenging macroeconomic factors, the near-term revenue growth for Kimberly-Clark will likely be tepid with a continued decline in volume. At the same time, IDEXX’s sales are expected to expand faster, aided by a growing base of pet owners.
- If we compare the current valuation multiples to the historical averages, IDEXX fares slightly better. IDXX stock trades at 11x trailing sales, compared to its last five-year average of 13x, and KMB stock trades at 2.1x vs. the last five-year average of 2.4x.
- Our Kimberly-Clark (KMB) Valuation Ratios Comparison and IDEXX Laboratories (IDXX) Valuation Ratios Comparison dashboards 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 10% for Kimberly-Clark stock over this period vs. 24% gains for IDEXX, implying that investors will likely be better off picking IDXX over KMB, based on Trefis Machine Learning analysis – Kimberly-Clark vs. IDEXX Laboratories – which also provides more details on how we arrive at these numbers.
While IDXX may outperform KMB 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 has seen an 8% decline this year. Can it drop more 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.
|S&P 500 Return||-1%||16%||100%|
|Trefis Reinforced Value Portfolio||-3%||28%||555%|
 Month-to-date and year-to-date as of 9/14/2023
 Cumulative total returns since the end of 2016