Kimberly-Clark (KMB) is a nice stock to own. You are getting steady, predictable businesses in the consumer staples space. If the market sinks and the economy falls into a recession, KMB will continue to post solid profits. However, as Warren Buffett says, price is what you pay, value is what you get. At current prices, you are going to be paying a lot for KMB's great businesses and expect the company to start growing at some rapid pace companies of this size don't see. This is unlikely to happen. All but one of the valuation metrics suggest that the stock is overvalued so it's best to stay away from KMB at this point and wait for the price to fall significantly before it makes sense as an investment.
Looking into recent events, earlier Friday the company released Q1 results. KMB beat Street estimates by a 7 cents and the overall report looked strong as KMB's organic sales rose 6%, driven by higher net selling prices and sales volumes. Gross margin rose 3.5 points to 32.5%. The increased its committment to investing in its brands, announcing a $45 million increase in strategic marketing. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Kimberly-Clark's trailing 5 year valuation metrics suggest that the stock is overvalued as all of the metrics are above their respective 5 year averages. Kimberly-Clark's current P/B ratio is 5.7 and it has averaged 4.8 over the past 5 years with a high of 6 and low of 4.1. Kimberly-Clark's current P/S ratio is 1.4 and it has averaged 1.4 over the past 5 years with a high of 1.8 and low of 1. Kimberly-Clark's current P/E ratio is 18.9 and it has averaged 15 over the past 5 years with a high of 18.4 and low of 11.6.
Price Target: The consensus price target for the analysts who follow Kimberly-Clark is $75. That is downside of -1% from today's stock price of $75.27 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Kimberly-Clark is currently trading at about $75 a share with analysts expecting EPS of $5.5 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 13.7. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Proctor & Gamble (PG) is currently trading at about $67 a share with analysts expecting EPS of $4.29 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 15.5. Avon Products (AVP) is currently trading at about $22 a share with analysts expecting EPS of $1.68 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 13.2. Colgate-Palmolive (CL) is currently trading at about $98 a share with analysts expecting EPS of $5.9 next year, an earnings increase of 9% y/y, for a forward P/E ratio of 16.6. The mean forward P/E of Kimberly-Clark's competitors is 15.1 which suggests that Kimberly-Clark is fairly valued relative to its publicly traded competitors.
Earnings Estimates: Kimberly-Clark has beat EPS estimates 1 times in the past 4 quarters. The company's EPS figures have come in between -8 cents and 4 cents from consensus estimates or about -6.8% to 3.5% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
Price Action: Kimberly-Clark is up 15% over the past year, outperforming the S&P 500, which is up 7.1%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $72.70 and above its 200 day moving average, which sits at $69.36.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.