This article is sponsored by RePlatform! Check out their upcoming event in Las Vegas!

About Kimberly-Clark

I’m not going to lie, one of the first things I thought of when thinking about Kimberly-Clark was that it is really just a poor man’s Procter & Gamble (NYSE: PG).

For better or for worse, I’m just being brutally honest, and for the Kimberly-Clark enthusiasts and fanatics out there, please receive my most sincere and humble apologies.

However, in my defense, these companies are both incredibly similar and in more cases than one, are direct competitors, for instance, as both of these are large, scaled and established consumer packaged goods (CPG) companies that sell essential everyday products to consumers, businesses and other organizations such as toilet paper, paper towel dispensers, paper towels, diapers, adult care products, feminine care products, child care products as well as a long line of other paper-rooted products such as tissues and wet wipes, among many others.

Indeed, you are more than likely familiar with their brands, as Kimberly-Clark is home to prominent CPG brands such as Kleenex, Huggies, Cottonelle, Viva, Scott, Pull-Ups, Andrex, and a few others, and while we would confidently say that the company doesn’t have as much brand power as Procter & Gamble, these are definitely some well known brands sold and relied upon all across the globe and, heck, this Irving, Texas-headquartered CPG conglomerate just might have a lot more to offer through its financials and other related metrics than just toilet paper.

In fact, one of the initial positives that can be garnered regarding Kimberly-Clark (that also just so happens to be the case with P&G, by the way) is the fact that the vast majority of the products it sells are quite non-discretionary for the everyday consumer, or, in other words, it is incredibly challenging for individuals and families to get through their lives without the aforementioned products and associated brands, naturally boding well for Kimberly-Clark, not to mention that we presume that this one of the few companies that saw a jump in demand for its products during and following the brunt of COVID-19, with individuals stockpiling, hoarding and preparing for the worst but praying for the best.

It is also worth briefly mentioning that Kimberly-Clark doesn’t fully depend on individual consumer purchases, but it also has a rather significant enterprise client base, with clients such as universities (such as mine, as a matter of fact), hospitals and major businesses (reportedly) such as Walmart, Target, Costco, the Mayo Clinic, McDonald’s, Starbucks, Chick-fil-A, PepsiCo, as well as major branches and regimes within the United States government, not to also momentarily mention that this company operates in a highly competitive bunch of markets, competing directly with not only Procter & Gamble, but also the likes of Unilever, Colgate-Palmolive and Clorox, which are simply among the largest and most powerful CPG companies and operators in the entire world.

There’s a lot going on with Kimberly-Clark as it relates to its business operating landscape.

Additionally, we would also venture to say that this company is fairly resistant to recessionary and/or inflationary pressures, as, again, it offers products that consumers need on a daily basis, regardless of the prevailing state of the economy or their personal budgets.

Lastly, we will add that we would be absolutely stunned if this company were to be growing at any significant rate, as this company has been around for over a century (founded in 1872) and operates as a leader within a very mature market, for better or worse, thus, for those looking for annual double-digit revenue growth and excessive innovation, we don’t think you’re going to be exactly thrilled during this analysis, however, we very well could be wrong and Kimberly-Clark could in fact be growing at an eyebrow-jumping pace.

We’ll never know until we look for ourselves, so let’s get this show on the road.

Kimberly-Clark’s stock financials 

First of all, Kimberly-Clark is a $41.97 billion company with a share price of $124.19 along with a price-to-earnings (P/E) ratio of 23.86 while also issuing an annual dividend of $4.72, leading us to initially believe that this firm does a pretty good job at generating consistent and positive free cash flow (FCF), particularly if it is able to sufficiently service and distribute a dividend as large as this one, and we would expect it to given how seasoned the company in question is, but of course, we will verify later on in this stock analysis article.

What can also be seen in this initial information is that Kimberly-Clark’s stock price (NYSE: KMB) appears to be a smidge on the higher end relative to its true, intrinsic value, given that its displayed current price-to-earnings ratio is just north of the commonly held fair value benchmark of 20, which can be justified if the company is growing its revenues at a decent rate, however, for this mature and large of a company, it wouldn’t generally make sense buying at a premium if the growth isn’t really there.

Once again, we will verify.

But first, flipping over to the condition of the company’s balance sheet, Kimberly-Clark’s executive team is in charge of around $18 billion in terms of total assets along with approximately $17.4 billion in terms of total liabilities, which, for a company as large and operationally deep such as this one, makes sense overall, with all of the equipment, factories, and input costs thereof that this international company is in charge of responsibly paying down.

So long as this company is pretty good at generating cash from its business operations (which we will definitely check on momentarily), then we aren’t going to get too hung up on the company’s still total asset-heavy balance sheet, again, given how storied and large and frankly essential it is to its core customers and end users.

With respect to the company’s income statement, Kimberly-Clark’s total annual revenues (measuring since 2018) have been trending upwards ever so slightly, starting at a relative base of nearly $18.5 billion (as reported in 2018), trudging quite slowly up to its latest reported annualized revenue figure of $20.1 billion (2022), which we deem to be partially due to a combination of factors, including but perhaps not limited to mild price hikes throughout the current and past inflationary period(s) as well as the company entering new markets and/or maybe some slightly elevated organic growth in demand from households and other companies and facilities this company serves, and given just how large this company is, any growth on the revenue front is good growth to us, even if the growth hasn’t been as strong as, say, a Procter & Gamble, which is the unequivocal fact of the matter, by the way.

Onto the condition of the company’s cash flow statement, Kimberly-Clark’s total cash from operations (also measured between and including 2018 and 2022) have been as consistent as all get out, which, given all of the recent turmoil and uncertainty plaguing the economy, is evidently a good sign, as with boring usually follows consistent, and both Kimberly and Clark fit this mold to an absolute tee.

More specifically, the company’s total cash from operations have generally trended at the mid-to-high range of $2 billion, occasionally tapping into $3 billion in more recent years, indicating the fact that cash generation through the multitude of its business operations is firm, stable, tried and true, which is quite literally exactly what we expected from such an established and mature business, and speaks directly to the company’s ability to support its present annual dividend.

Kimberly-Clark’s stock fundamentals

And with that, we lead into learning more about this company’s profitability, specifically on a trailing twelve month (TTM), net profit margin basis, and, to us, more importantly, how it measures up against that of the competition’s cumulative average.

Well, it turns out that Kimberly-Clark’s TTM net profit margin, again, with respect to the industry’s average, isn’t all that competitive, as according to the figures displayed on TD Ameritrade’s platform, the company’s TTM net profit margin is markedly lower than that of the industry’s average, as it stands at 7.78% to the industry’s relative average of 14.84%, about half of that of the industry’s prevailing average.

Sure, we will be fair in cutting Kimberly-Clark the slightest of slack given its immense global, widespread operations and product lines and other enterprise solutions, however, this company’s competition (again, think P&G), is essentially in the same exact, expense-riddled spot, so we can’t take ourselves seriously if we were to cut Kimberly-Clark anymore slack than we did with any other major, billion-dollar CPG conglomerate.

Therefore, at the end of the day, the company’s TTM net profit margin is much lower than that of the industry’s respective average and this stinks, and as for potential causes, perhaps Kimberly-Clark’s executives could be a bit more effective in finding non-quality comprising ways to cut costs within some of the links of their supply chains, perhaps, or maybe find ways in which they can reduce employee headcount across the board, with such roles and functions being replaced by artificial intelligence (AI).

Now don’t get us wrong, we are pro-human and pro-human work, but at the end of the day, on a purely objective basis, it would serve Kimberly-Clark well if it cut out some costs, as this would almost definitely beef up its current TTM net profit margin.

As it relates to the company’s TTM returns on both assets and investment(s), again, as they also measure up with the industry’s respective averages, Kimberly-Clark still finds itself lagging behind the industry’s averages, in both of these respects for that matter, for example, with its TTM return on assets pegged at 9.08% to the industry’s listed average of 11.29%, not painting the worst of pictures but this company needs to seemingly become a bit more efficient with its allotted and available capital.

Should you buy Kimberly-Clark stock? 

Like we initially stated, Kimberly-Clark is not a growth company or a growth stock for that matter.

However, even when keeping that in mind prior to taking a single glance at the company’s financials, we are still feeling incredibly neutral about Kimberly-Clark and its prospects.

Its stock likes to trade flat (again, not an indication of the future, but we are merely referencing a perhaps very relevant past trend), its balance sheet is in fine condition (not amazing, not terrible), its revenues have been flat on a year-over-year basis for the most part, its cash flows have been about as consistent as we had initially presumed them to be, with its TTM net profit margin and aforementioned return metrics being quite uninteresting, lagging the industry on both of these fronts.

Oh yeah, and we might want to consider this company’s present valuation, as Kimberly-Clark’s stock (NYSE: KMB) is apparently trading at an ever so slight premium, and given all of these facts along with the other trends relating to a company such as this one, until this company’s stock comes down and trades at a more favorable price-to-earnings multiple, we are interested in nothing else but offering it a “sell” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

© 2024 MacroHint.com. All rights reserved.