3 Reasons to Pick This Personal Care Stock
Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Kimberly-Clark (NYSE: KMB) is one of those few stocks that doesn’t need any buzz to outperform the market. The stock has gained about 50% and 33% in the last two years and one year, respectively. Besides, this stock has a quality of consistently distributing dividends to shareholders. All in all, it is a solid stock operating in a niche business, and I have good feelings about this.
In this article, I am going to do a fundamental and operational analysis of the company to discuss three major reasons why the company is able to outperform the market in the long run.
Leadership position in its Niche business
Kimberly-Clark operates in the personal care industry and faces competition from the big names like Procter & Gamble (NYSE: PG) and Johnson & Johnson (NYSE: JNJ). However, because of the niche segment which Kimberly-Clark caters to, it has established itself as a market leader, under some of its products’ categories.
Products offered – facial and bathroom tissue, paper towels. Napkins
Brand name – Cottonelle, Viva, Andrex, Scottex, Hakle
Products offered- apparel, wipers, soaps , sanitizers, tissues and towels
Brand name- Kleenex, Scott, WypAll, Kimtech and Jackson Safety
Products offered- under pain management and respiratory and digestive health category
Brand names- Kimberly-Clark and ON-Q
Kimberly-Clark Health Care holds leadership position in categories like infection control solutions, surgical solutions, pain management, hygiene solutions and digestive. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend, Kimberly-Clark holds the No. 1 or No. 2 share position in more than 80 countries
Continual Expansion and Overhauling of operations
In this section, I will discuss some of the company’s expanding and restructuring activities and how these activities are going to help the company in the long run.
Acquisition: Kimberly-Clark is expanding into emerging markets. It acquired the anesthesia business of Life-Tech, a Texas-based medical device manufacturer. This acquisition will enable Kimberly-Clark to capitalize on its leading position in the ON-Q category.
Supply chain restructuring: Kimberly-Clark has been trying to connect its supply chain to the store shelf, for the past six years. The purpose is to create a demand-driven supply chain that would make and warehouse only the precise amount of inventory needed to replace. Main factor behind the demand-supply mismatch was that the company’s store shipments were based on historical sales forecasts, which were not very accurate predictors of future sales. To synchronize this process, the company is planning to use point-of-sale (POS) data from consumer purchase as the basis for replenishment to retailers.
Cost cutting measures in developing and non-performing markets
In developing markets, the company’s net sales increased by 8 percent. This growth came despite a five percent decrease from unfavorable currency translational effect. Sales volumes increased by nine percent in the regions like Brazil, China, Russia and South Korea. Operating profit for the personal care segment in the developing market increased due to higher net sales and cost savings strategy adopted by the company. Besides, the company took a major decision of restructuring in Europe region to maintain its profitability, amidst falling consumer-demand. The restructuring plan will involve the sale or closure of five manufacturing facilities and the reduction of workforce by approximately 1,300 to 1,500 positions.
Fundamentally stronger over its competitors
Kimberly-Clark announced its quarterly results for the first quarter of 2013, performing ahead of expectations. Q1 EPS of $1.48 is $0.15 above the expectation and revenue of $5.32 billion is $0.04 billion ahead of it. Market responded well to the news and the stock jumped about 5% on the announcement day.
Kimberly-Clark has an edge over its competitors like P&G and Johnson & Johnson, fundamentally. Let’s look into the fundamental-details of each one of them to compare.
Procter & Gamble- like Kimberly-Clark is also on bullish trend in the last one year and gained about 30%. Its EPS stands at 4.41, one of the highest in the industry, just next to Kimberly-Clark’s EPS of 4.42. In terms of fundamentals, P&G has a P/E ratio of 18.18 while Kimberly-Clark has it at around 22. Price to Book value stands around 3.3 and price to sales at 2.6 for P&G. Though these figures are impressive but with the net earnings showing a growth of -8.82%, in the previous year consolidated results, the fundamentals don’t augur well for P&G stock.
Johnson & Johnson- price to earnings ratio is around 16, price to book value stands around 3.5 and price to sales at 3.4. Here also, with the net earnings decreasing in the previous quarter and having high P/E value, the stock is not expected to show a bullish trend.
For Kimberly-Clark, EPS increased by 12 percent in the previous year and sales increased by three percent. With these growth and healthy fundamental figures, investors can expect the stock’s price to appreciate further.
Kimberly-Clark is one of the few stocks that are able to maintain their price level for more than a year. This stock is still showing an upward trend and there are reasons to believe that the trend is justified. Since the company modified its strategies in the overseas markets and has strong fundamentals, I feel confidently bullish on this stock for the long run.
This article is written by Vaibhav Srivastava (B.Tech, Information Technology, MBA in Finance, IIFT) and edited by Shas Dey, StockRiters' Editor-in-Chief. Neither StockRiters nor any of its Directors or employees have any position in any stock mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!