Eric Cota's  Instablog

Kimberly-Clark is a leading player in the global health and hygiene category selling bathroom tissues, diapers, feminine products, and paper towels. Its brands include Kleenex, Scott, Huggies, Pull-Ups, and Kotex. Kimberly sells its products directly and distributes them through supermarkets, mass merchandisers, and drugstores, among other outlets. Sales generated outside of North America account for about 45% of the firm's consolidated sales base.

Estimated WACC for the firm today is 4.36% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Average Annual Growth FCF: ~ 3%

CAGR FCF: ~ -2%
Consensus Forecast Industry 5-Year Growth: ~ 13% per year

Consensus Forecast Company 5-Year Growth: ~ 6% per year

Internal Growth Rate: ~ 2%

Sustainable Growth Rate: ~ 9%

Scenario 1

• Start at $1320 million FCF
• Assume a 5-year growth rate in FCF of 6% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

The firm's future cash flows, discounted at a WACC of 4.36%, give a present value for the entire firm (Debt + Equity) of $41618 million. If the firm's fair value of debt is estimated at $7057 million, then the fair value of the firm's equity could be $34561 million. $34561 million / 394 million outstanding shares is approximately $88 per share and a 20% margin of safety is $70/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 3% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

• Present Value of the entire firm (Debt + Equity): $35556 million
• Value of Equity: $28499 million or $72/share
• 20% margin of safety is $58/share

Sources

Morningstar.com

Yahoo! Finance

Kimberly-Clark.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.