Welcome to Today’s Stock of the Day!
Cold and flu season is just around the corner so many are stocking up on tissues, hand sanitizer and disinfecting wipes. This is great business for personal care giant Kimberly-Clark (KMB). Coincidentally KMB shares are on the rise after the company’s surprisingly strong third-quarter earnings announcement. But can KMB keep up the momentum heading into cold and flu season? Let’s find out:
Kimberly-Clark specializes in disposable personal care products like Kleenex tissues, Huggies diapers, Scott toilet paper and Kotex feminine products. Additionally, under its K-C Professional segment, the company makes soaps, sanitizers and tissues for a range of workplace needs. Kimberly-Clark sells its household products through mass merchandisers and other retail outlets; it holds the No. 1 or No. 2 brand share in more than 80 countries. With 140 years of experience in the business and a global workforce of 58,000 employees, Kimberly-Clark brought in over $21.1 billion in sales last year.
Kimberly-Clark reported strong third-quarter sales and earnings on Tuesday. Compared with Q3 2012, net income advanced 6% to $546 million. Adjusted earnings weighed in at $1.44 per share, which topped the $1.40 consensus estimate by 3%. Over the same period, net sales ticked up from $5.25 billion to $5.26 billion. Analysts forecast sales of $5.23 billion, so Kimberly-Clark also posted a modest sales surprise. Stripping the impact of acquisitions, divestitures and foreign exchange rates, organic sales rose 5% over last year.
While Kimberly-Clark lost some sales by exiting much of its personal care business in Europe, the company benefited from sales increases in Consumer Tissue, K-C Professional and Health Care segments. The company also lifted its 2013 full-year earnings outlook to a range of $5.65 to $5.75 per share. Earlier, the company had forecast earnings in a range of $5.60 to $5.75 per share. As to be expected, shares gapped up following the report, and I see plenty of upside from here.
I like KMB for its sizeable 3.3% dividend yield—one of the highest in the Personal Products industry. The company has a strong dividend history, having hiked up its annual payment for each of the past 40 years. We’ll likely see KMB declare its next quarterly dividend in a few weeks to stay tuned.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. With healthy fundamentals and strong buying pressure backing up this Conservative stock, KMB spent much of the past year at a solid buy.
However, KMB did get caught up in some of the general choppiness hitting high-yield stocks this fall. So my screens detected a decline in buying pressure (resulting in a C-rated Quantitative Grade) and I was prompted to downgrade the stock to a hold. Even so, I don’t expect this short-term weakness to last. As I covered earlier, the company just reported strong quarterly results.
This, compounded with a weak dollar that will boost the company’s results going forward, should should help lift KMB’s ratings for sales growth, operating margin growth, earnings growth and earnings surprises. While KMB is a C-rated stock at the moment, it’s quite likely that it will re-enter buy territory before long.
As of October 22, 2013, I consider KMB a C-rated Hold. However, that may change once I plug the latest earnings results into Portfolio Grader. So if you’re interested in KMB, be sure to check my Portfolio Grader ranking next Monday morning.
Recommendation: C-rated Hold
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!