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Why Kimberly-Clark Stock May Stop Rising

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Jun. 14 2019, Published 2:06 p.m. ET

What’s driven KMB stock?

Kimberly-Clark (KMB) stock has risen 20.5% this year, boosted by the company’s better-than-expected sales and earnings during its last reported quarter. Kimberly-Clark has beaten analysts’ sales estimates in the past three quarters on the back of healthy organic sales growth, higher net price realization, and a favorable mix.

Improved organic sales, cost and productivity savings, and share buybacks cushioned its bottom line, which also beat Wall Street’s expectation. Kimberly-Clark’s top and the bottom lines are expected to improve in the second half of 2019, and this optimism has supported its stock. Consumer packaged goods stocks Colgate-Palmolive (CL), Procter & Gamble (PG), and Church & Dwight (CHD) have also risen this year thanks to improved organic sales led by higher pricing and a better mix.

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Valuation could hurt Kimberly-Clark stock

Kimberly-Clark’s quarterly performance was impressive. However, its valuation looks unattractive and could limit any upside in its stock. Kimberly-Clark’s top and bottom lines fell year-over-year. We expect its sales and earnings to stay low in the second quarter but improve in the second half.

Kimberly-Clark stock looks expensive with a forward PE multiple of 20.4x, higher than its four-year average of 18.5x. Analysts expect its EPS to grow just 1% and 4.7% in 2019 and 2020, respectively, making its valuation unattractive.

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