Should You Pick Kimberly-Clark Stock At $120 After A Downbeat Q4?

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KMB: Kimberly-Clark logo
KMB
Kimberly-Clark

Kimberly-Clark (NYSE: KMB) recently reported its Q4 results, with revenues and earnings falling below the street estimates, and we believe KMB stock is fully valued, as discussed below. The company reported revenue of $4.97 billion and adjusted earnings of $1.51 per share in Q4, compared to the consensus estimates of $4.99 billion and $1.53, respectively. We discuss Kimberly-Clark’s stock performance below, 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 30% 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 -10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 mega-cap 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 appropriately priced. We estimate Kimberly-Clark’s Valuation to be $123 per share, close to its current levels of $121. Our forecast is based on an 18x P/E multiple for KMB and expected earnings of $6.88 on a per-share and adjusted basis for the full year 2024. The company expects its earnings to rise in the high-single-digit in 2024 on a constant currency basis.

Kimberly-Clark’s revenue of $5.0 billion in Q3 was up 3% y-o-y on an organic basis, driven by 2% pricing growth and 1% from a favorable product mix, while volume remained flat. The company saw its operating margin contract 80 bps y-o-y to 13.5%. This weighed on the company’s bottom line, which stood at $1.51 on a per-share and adjusted basis in Q4’23, down 2% y-o-y. 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, rising costs, tepid volume growth, and the impact of a potential recession on its sales, are some risk factors that could weigh on KMB’s performance 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.

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 KMB Return 0% -11% 6%
 S&P 500 Return 2% 29% 121%
 Trefis Reinforced Value Portfolio 0% 38% 607%

[1] Returns as of 2/7/2024
[2] Cumulative total returns since the end of 2016

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