Kimberly-Clark (NYSE: KMB) recently reported its Q3 results, with revenues falling below and earnings beating the street estimates. However, we believe KMB stock has little room for growth, as discussed below. The company reported revenue of $5.1 billion and adjusted earnings of $1.74 per share in Q3, compared to the consensus estimates of $5.2 billion and $1.56, respectively. We discuss below Kimberly-Clark’s stock performance, key takeaways from its recent results, and valuation.
KMB stock has seen a decline of 10% from levels of $135 in early January 2021 to around $120 now, vs. an increase of about 10% for the S&P 500 over this roughly three-year period. However, the decrease in KMB stock has been far from consistent. Returns for the stock were 6% in 2021, -5% in 2022, and -12% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 9% in 2023 (YTD) – indicating that KMB underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector, including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could KMB face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
From a valuation perspective, KMB stock looks like it has little room for growth. We estimate Kimberly-Clark’s Valuation to be $131 per share, reflecting only a 9% upside from its current levels of $120. Our forecast is based on a 20x P/E multiple for KMB and expected earnings of $6.51 on a per-share and adjusted basis for the full year 2023. The company raised its earnings outlook to now be in the range of $6.48 and $6.59 (vs. the $6.20 and $6.42 range earlier).
Kimberly-Clark’s revenue of $5.1 billion in Q3 was up 2% y-o-y. On an organic basis, sales were up 5%, driven by 6% pricing growth and product mix, partly offset by a 1% decline in volume. The company saw its operating margin expand 210 bps y-o-y to 15.1%. Higher revenues and margin expansion led to a 24% y-o-y rise in the bottom line to $1.74 on a per-share and adjusted basis in Q3’23. Looking forward, we believe it will be difficult for Kimberly-Clark to continue to raise prices, which may result in more people opting for lower-priced brands, especially in a recession scenario.
KMB stock is trading at 2.0x sales compared to the last five-year average of 2.4x. We believe investors will likely be better off waiting for a dip to enter KMB for better gains in the long run. Challenging macroeconomic factors, declining volume, and the impact of a potential recession on volume are some risk factors that could cap KMB’s growth in the near term.
While KMB stock looks like it has little room for growth, 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.
|S&P 500 Return||0%||9%||87%|
|Trefis Reinforced Value Portfolio||0%||18%||504%|
 Month-to-date and year-to-date as of 11/1/2023
 Cumulative total returns since the end of 2016