In this article, let's take a look at Kimberly-Clark Corporation (KMB, Financial), a $42.5 billion market cap company, which is best known for brands such as Kleenex, Scott, Huggies and Kotex.
Forward looking
The company sells products in more than 150 countries, operating as a broadly diversified portfolio. It operates four segments: Personal Care (49% of 2014 sales); Consumer Tissue (34%); K-C Professional & Other (17%).
The personal care products giant has a well-known portfolio. Despite this, brands like Kleenex, Huggies, Kotex face strong competition. For example, sales of Huggies tumbled in the recent past, due to intense competition and innovation by Procter & Gamble (PG, Financial). Moreover, the company faces external risk, like exchange rate risk from its international operations.
Thinking about its long-term growth, we believe Kimberly-Clark would expand in non-traditional categories. Further, the firm plans to focus on emerging markets. Sales by geographic region are approximately: North America 49%; Europe 14%; and Asia, Latin America and other 37%. We believe double-digit growth will come from emerging markets, where income is becoming higher. Now it accounts for nearly 40% of total sales, and we expect far more in the long run.
Dividend hike
The board of directors has declared a regular quarterly dividend of $0.88 per share. The dividend is payable on Oct. 2, 2015, to stockholders of record on Sept. 4, 2015. This was the 43rd consecutive year that it has increased its dividend and the 81st straight year it has paid dividends to shareholders. The dividend yield is 3% and is close to a one-year high.
Revenues, margins and ratings
Looking at profitability, revenues declined by 6.26% and led earnings per share decreased in the second quarter compared to the same quarter a year ago (-$0.84 vs $1.32). Despite unfavorable foreign exchange, we believe this situation would change in the future.
The gross profit margin is considered high and it has increased from the same quarter a year ago. The net profit margin of -6.56% is ranked higher than 53% of the 1424 companies in the Global Household & Personal Products industry.
Most analysts have a neutral opinion on the firm: 7 Hold Rating(s), 3 Buy Rating(s). When looking at the consensus price target, it stands at $116.00 according to MarketBeat, giving a 0.57% downside potential.
Relative valuation
In terms of valuation, the stock sells at a trailing P/E of 68.38x, trading at a premium compared to an average of 22.2x for the industry. To use another metric, its price-to-book ratio of 82.15x indicates a premium versus the industry average of 1.55x while the price-to-sales ratio of 2.25x is above the industry average of 0.95x. These ratios indicate the stock is relative overvalued and so a “sell” recommendation is appropriate.
Final comment
Despite the fact that the firm could face a scenario of slow economic growth and worst of all, unfavorable demographics, as outlined in the article we believe long-term growth will come by expanding on emerging markets as well as focusing on non-traditional categories. We must highlight that product innovation is crucial to continue in the market.
Hedge fund gurus like Mario Gabelli (Trades, Portfolio) and John Hussman (Trades, Portfolio) have reduced their positions in the second quarter of 2015 by 8.63% and 25.0%, respectively. More bearish were Pioneer Investments (Trades, Portfolio) and Manning & Napier Advisors, Inc because both fund sold out the stock.
Disclosure: Omar Venerio holds no position in any stocks mentioned
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