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What Could Stall the Recovery in Kimberly-Clark Stock?

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KMB’s performance

Kimberly-Clark (KMB) stock has recovered nearly 6% in the last two trading days. However, KMB is still down 6.5% on a YTD (year-to-date) basis as of December 27, as soft sales and sluggish margins have remained a drag. We believe the company’s near-term sales and margin headwinds could act as deterrents and stall the recovery in its stock.

In comparison, the stocks of other major household and personal care product manufacturers have also marked decent recoveries in the past couple of days. Shares of Procter & Gamble (PG), the Clorox Company (CLX), Church & Dwight (CHD), and Colgate-Palmolive (CL) have recorded rises of 5.3%, 5.4%, 4.9%, and 2.8%, respectively.

On a YTD basis, Church & Dwight and Clorox have risen 31.0% and 3.0%, respectively, and Procter & Gamble is trading flat. On the contrary, Colgate-Palmolive stock has underperformed its peers and is down 20.9% YTD as of December 27.

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Near-term headwinds

We expect Kimberly-Clark’s top line to remain weak in the coming quarters, as adverse currency rates and persisting challenges in China are likely to play spoilsport. Kimberly-Clark is facing tough YoY (year-over-year) comparisons in the first quarter of 2019, which could hurt its sales. Wall Street expects Kimberly-Clark’s top line to fall in the fourth quarter of 2018. Analysts expect its sales to remain weak in the first half of 2019.

Soft sales and cost headwinds are expected to hurt Kimberly-Clark’s margins and more than offset the benefits of higher pricing. Its bottom line growth rate is also expected to take a hit due to weak margins and tax headwinds.

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