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Why Kimberly-Clark Stock’s Valuation Looks Unattractive

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Challenges continue to hurt sales and earnings

Kimberly-Clark (KMB) has beaten analysts’ sales estimates in the past two quarters, thanks to higher net prices. However, its sales have continued to decline. Kimberly-Clark’s top line fell ~2% in the third quarter of 2018 and ~1% in the fourth quarter. We expect Kimberly-Clark’s net sales to continue to decline in the first half of this year, reflecting adverse currency rates, heightened competition in the value segment, and continued challenges in China.

Kimberly-Clark’s margins could continue to narrow due to higher pulp and other raw material costs and currency volatility. Its adjusted earnings are projected to decrease in the first half of 2019, which could drag down its earnings for the year. Weak sales, margin pressure, and higher tax are expected to hurt Kimberly-Clark’s bottom line in 2019, offset by share repurchases.

Valuation

Kimberly-Clark stock is trading at 18.5 times its 2019 estimated EPS of $6.61, which looks expensive as KMB’s bottom line is projected to fall year-over-year. However, the stock is trading at a 24% discount to peers’ average valuation of 24.3x. Procter & Gamble’s (PG), Colgate-Palmolive’s (CL), Clorox’s (CLX), and Church & Dwight’s (CHD) forward PE multiples are 22.1x, 23.3x, 24.5x, and 27.3x, respectively.

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