On Friday, Goldman Sachs assumed coverage on shares of Kimberly Clark (NYSE:KMB), assigning a Buy rating and setting a price target of $135.00. The firm's analysis indicates an 11% potential upside from the current stock price, driven by an expected inflection in volume trends and a favorable cost environment that could enhance gross margins.
The firm anticipates Kimberly Clark to experience a significant gross margin expansion, estimating an increase of 160 basis points in fiscal year 2024 compared to the consensus of 110 basis points. This forecast is based on a bottom-up cost build that closely aligns with reported inflation, taking into account the current commodity costs, which are notably lower than their 2022 peaks. While acknowledging that Kimberly Clark's hedging strategies may temper some benefits, the firm still sees room for margin growth through the fiscal year.
The analysis suggests that the market may be underestimating Kimberly Clark's potential for gross margin expansion. This could lead to increased investments in the company's brands, aiding in market share recovery, and is expected to contribute to an approximate 6% growth in earnings per share (EPS) for the year. This outlook is particularly favorable when compared to the company's past earnings growth rates, including a compound annual growth rate (CAGR) of 4.6% from 2014 to 2019 and a -1.2% CAGR from 2019 to 2023.
Goldman Sachs highlights the attractive valuation of Kimberly Clark's stock, which is currently trading at an 8-9% discount to its five-year average trading multiple. The firm believes this presents a compelling entry point for investors, especially with the upcoming Analyst Day in March. During this event, management is expected to provide further insights into the drivers of volume-led growth and margin expansion, including additional productivity savings, which could lead to upward estimate revisions.
InvestingPro Insights
As Goldman Sachs reinitiates coverage on Kimberly Clark (NYSE:KMB) with a positive outlook, InvestingPro data and tips offer additional perspectives on the company's financial health and stock performance. With a market capitalization of $40.82 billion and a trailing twelve months price-to-earnings (P/E) ratio of 18.13, Kimberly Clark is positioned as a substantial player in the consumer goods sector. The company's commitment to shareholder returns is evident, as it has maintained dividend payments for 54 consecutive years and currently offers a dividend yield of 4.03%.
Despite a modest revenue growth of 1.27% over the last twelve months as of Q1 2023, Kimberly Clark's gross profit margin stands at a robust 34.42%, suggesting efficient cost management. This aligns with Goldman Sachs' anticipation of gross margin expansion, which could further enhance profitability. Moreover, analysts predict the company will be profitable this year, underpinned by a solid operating income margin of 14.03%.
An InvestingPro Tip that could be of particular interest to investors is the company's trading near its 52-week low, possibly indicating a buying opportunity, especially in light of the potential upside identified by Goldman Sachs. For those looking for more comprehensive analysis and additional tips, there are 9 more InvestingPro Tips available, which can be accessed with a subscription. Using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, offering a deeper dive into Kimberly Clark's financial metrics and investment potential.
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