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Kimberly Clark................... [NYSE:KMB] April 18, 2008 close: $63.34
52-week range: $62.16 (Jan. 22, 2008) - $72.79 (Jun. 5, 2007)
Yield = 3.66%
KMB makes and markets personal care, consumer tissue products and away-from-home products. Major brands include Huggies and Pull-Ups, Kotex, Depends and Poise, Kleenex, Scott, Cottonelle, and Viva.
Kimberly Clark is one of a handful of stocks that garner Vlaue Line's A++ financial strength rating. They also earned top 1 percentile rankings in both 'stock price stability' and 'earnings predictability' categories. Not surprisingly they also get Value Line's #1 [top] rank for safety.
KMB has shown remarkable earnings growth consistency over the years with higher EPS in 14 of the past 16 years. The three instances when EPS declined were minimal- a 1.4% dip from 1992 to 1993, a 2% decline from 1997 to 1998 and a 1.2% contraction between 2000 and 2001 [during the last official U.S. recession.]
Kimberly-Clark Corp: Key Ratios*
Year....... Avg P/E.........EPS...... Price/ Sales.... Price/ Book... Net Margin....Dividend...Aver. Yield
12/07...... 16.90.........$4.25 .........1.69.............. 5.59............ 10.0% .....$2.08 ........3.0%
12/06 ......19.10.........$3.90......... 1.87.............. 5.08............. 9.0% ......$1.96 ........3.2%
12/05 ......18.90.........$3.78......... 1.79 ..............4.95 .............9.9% ......$1.80 ........2.9%
12/04 ......17.90.........$3.61......... 2.18 ............. 4.79 ............11.7% .....$1.60 ........2.5%
12/03 ......15.50 ........$3.38..........2.14 ..............4.38 ............11.7% .....$1.36 ........2.7%
* Sources: MSN MoneyCentral & Value Line
High quality stocks with good yields typically trade at premium prices. KMB is no exception. Their 10-year median P/E has been 17.0 and the average P/E over the past five years has been 17.66x.
Kimberly Clark shares finished last week at just 13.9 times consensus views for 2008 of $4.55/share. This is the lowest P/E for KMB since early 2003 when the shares dropped along with the general market. Buyers of KMB back then saw their shares climb 60.8% going from $42.90 to $69.00 in about 19 months.
KMB buyers at the low in 2006 paid 14.5x forward estimates and watched the shares move up 28.6% going from $56.60 to $72.80 over just 16 months. Those are great moves on a stock with a Beta of 0.7 and a hefty yield. The gains just quoted did not include dividends.
What would be a reasonable 12-month target price? If KMB shares return to their normalized 17 multiple we would see $77.35. This is confirmed by looking at KMB's historical price/sales ratio. Even a lower than normal 1.7x estimated revenues of $45.85/share leads me to a $77.94 goal price. Today's yield of 3.66% is the highest in many years and better than virtually all bank CDs, money markets and even U.S. Treasuries.
From last week's quote of $63.34 to $77 would be a gain of $13.66 or + 21.57% plus the 3.66% current yield for a total return potential of > 25%.
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Barrons noted that Kimberly Clark's P/E was about 20% below its historical average P/E as part of their reasoning in recommending the shares.
[online.barrons.com]
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I read alot of your recommendations and the overwhelming themes to all your recs. is a reversion to the normailzed mean. While I believe alot of the businesses you covered may someday revert to their historical mean P/E's I do not think it is wise to use this generalised linear form of thinking. We should look thru the numbers and at the difference between the business today vs. two or three yrs ago when it was fetching a higher P/E. For Instance if earlier this year you would have argued that Walmart should carry a higher P/E today then it did several years ago I would have agreed with you since its a much more profitable company today then it was yrs ago. It has more stores and a more global footprint. But every time you argue something should revert to its historical mean please follow up with a case about where the business is today vs. last yr or several yrs ago, so that we can deciede for ourselves whether the business in fact is more profitable and should see its multiples expand.
In conclusion can we have more info on the business rather then the stock. Thanks.