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Kimberly Clark - KMB - Barrons Looks Right on this One

April 20, 2008 | About:
Kimberly Clark was written up in this week's Barrons as a good buy. I agree. Here's why...

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%.

********************************************************************


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.

http://online.barrons.com/article/SB120856577292828123.html?mod=yahoobarrons&ru=yahoo

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.MarketShadows.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 3.2/5 (18 votes)

Comments

kbodawala
Kbodawala - 5 years ago
Whats up Doc,

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.
svoleti7
Svoleti7 premium member - 5 years ago
For what its worth, I find that KMB has alot of value in its "Huggies" franchise. They have successfully moved the product into baby care products and innovations like the kid's pull-up pants. the numbers presented above are quite interesting, given the fact that the company has achieved this performance while dealing with major input cost increases (Petroleum is a major compnent in diaper production). In addition to what is basically a duopoly in diapers, KMB has a great business delivering paper based to hospitals and institutional clients. In fact, they only get 13% of their sales from walmart. (compare that to PNG-its available in the 10-K). The diverse nature of the KMB customer case enhances their pricing power and therefor the moat becomes wider and deeper. KMB also pays out a good portion of earnings, via dividends and earns good returns on capital reinvested into the business. They are well positioned in healthcare, through their industrial paper and surgical gowns. I think that at today's prices its as good abuy as kraft. just my opinion.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
PASTED from SeekingAlpha.com

Kimberly-Clark: Absorbing New Markets

by: Thomas Smicklas posted on: May 21,

Kimberly-Clark (KMB) is a company that has experienced ups, downs and, generally, stagnation. An institutional favorite, and especially a darling of American Century and Vanguard Fund families, KMB is lurching forward and may add some spice to its vanilla image.

Emerging market sales are now 31% of revenues, up from 25% a few years ago. Part of the success is driven by KMB's thorough consumer research, which includes home visits and shopping trips with consumers to better understand purchase decisions. The bottom line is now growing faster than the top line.

Kimberly-Clark does not wish the company to be grouped in with paper companies. Only 50% of KMB's portfolio of products is paper based (primarily due to a reduction of paper in diapers). That said, commodity prices will continue to have an impact on KMB's bottom line. The company at a recent conference stated that a large part of the recent surge in commodity prices was attributed to speculation, and that commodities the company uses should cost less down the road. A stronger U.S dollar may make their hopes become true.

Private label competition does not appear to be an issue at present. KMB brands are strong and growing stronger worldwide. Worldwide growth is an excellent story in process for Kimberly-Clark. For instance, only 20% of the families in emerging countries presently use diapers on a regular basis. KMB is using local market strategies and packaging to attract buyers with increasing success.

Competitors such as Proctor and Gamble (PG) are growing through acquisitions. KMB is not actively pursuing this mode of expansion. According to the company, acquisitions are only of interest if it can broaden the company's geography or help expand existing businesses such as in Health Care.

Trading below its 200-day average, this defensive stock may make a mildly attractive addition to a diversified portfolio. There is little downside risk,with the stock trading at $63.72 per share(52 week range of $61.94-$72.79), a dividend of 3.65% and a modest PE of 16.3. Kimberly-Clark appears to be a well run company. Return on assets is 9.87%, return on equity 30.39% and return on investment capital 13.95%. Gross profit margins are 31.07%, operating margin 14,25%, EBITDA margin 18.49% and overall profit margin 9.53%. Not a growth company, but an increasingly attractive, not-so-stodgy performer that will let you sleep at night.

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
PASTED from SeekingAlpha.com

Kimberly-Clark: Dividend Analysis

by: Dobromir Stoyanov

May 25, 2008 | about stocks: KMB

Kimberly-Clark Corporation (KMB) engages in the manufacture and marketing of health and hygiene products worldwide. It operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care.

Kimberly-Clark is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. KMB has delivered an average total return of 6.60 % annually to its loyal shareholders. over the past 10 years.


At the same time the company has managed to deliver a 7.50 % average annual increase in its EPS since 1998. The company also managed to buy back 2.60% of its outstanding stock annually on average each year since 1999.

The ROE ratio was declining from its 1999 high of almost 33% to the 25% lows in 2003 and 2006 before shooting back up above 33% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 8.30% annually, which is slightly above the growth in EPS. An 8% growth in dividends translates into the dividend payment doubling every 9 years. If we look at historical data, going as far back as 1988, KMB has indeed managed to double its quarterly dividend payments every nine and a half years on average.

If we invested $100,000 in KMB on December 31, 1997 we would have bought 2122 shares. Your first quarterly check would have been $530.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1,409 by December 2007. For a period of 10 years, the quarterly dividend has increased by 112 %. If you reinvested it though, your quarterly dividend income would have increased by 167.50%.

The dividend payout has remained below 50% for the majority of the past 10 years except for the past 3 years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.



I think that KMB is attractively valued with its low price/earnings multiple of 15, and DPR of 51%. The company also pays an above average yield of 3.60%.

Disclosure: Author owns shares of KMB.
budlab
Budlab - 5 years ago
Kimberly-Clark Corporation is a global health and hygiene company. The Company is engaged in the manufacturing and marketing of a range of health and hygiene products around the world. The segments of the Company include Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care. During the year ended December 31, 2007, the Company acquired the remaining 50% interest in its Indonesian subsidiary. Kimberly-Clark brand name products include "Kleenex" facial tissue, "Kotex" feminine hygiene products, "Cottonelle" toilet paper, Wypall utility wipes, "KimWipes" scientific cleaning wipes, Depend, Scott, VIVA, Andrex, Pull-Ups, GoodNites, Little Swimmers, Poise, Neat Sheet, and "Huggies" disposable diapers. Based in Irving, Texas, it has approximately 55,000 employees.

Kimberly-Clark, KMB has a (5-year annual average) net income growth rate of 2.29 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does KMB have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

KMB has a current market price is 57.83 Using an assumed growth rate of 7 percent, the estimated Intrinsic Value is per share from ValuePro.net, and there does not appear to be a bargain or 'margin of safety' present here.

The current price/earnings ratio = 14.

It's current return on capital = 14.41

Using a debt to equity ratio of .80, Kimberly-Clark shows a current return on equity = 32.2

Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Does Kimberly-Clark make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is KMB the best place to invest our money today?

What about Free Cash Flow compared to CocaCola?

See: http://quicktake.morningstar.com/stocknet/CashFlowRatios10.aspx?Country=USA&Symbol=KMB

KMB Free Cash Flow/Net Income 1.13 0.81 0.53 0.72 0.93 1.02 1.22 1.02 1.07 0.79 0.78

KO Free Cash Flow/Net Income 0.73 1.16 1.31 0.84 1.28 1.07 1.08 1.13 0.90 0.92 0.92



Excerpts, comments, and news items: http://finance.yahoo.com/q/h?s=KMB

My question is: What are it's competitive positions going forward with and without inflation or recession pressures.

As always, I appreciate hearing your views,

Bud Labitan

Labitan Partners

budlabitan@aol.com

www.frips.com
DaveinHackensack
DaveinHackensack - 5 years ago
Has anyone ever tallied Barron's track record with its picks?
billspetrino
Billspetrino - 3 years ago
This is a perfect example of why it is important to buy the right company

Despite the fcat the Dow is almost 20% lower than it is now

Doc picked a defensive solid company and got a decent entry point

The investor who reinvested dividends here is ahead of cash and is situtated in a quality stock

Picking the right stock is key here and the entry point was solid

nice call doc

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