Stock Analysis: Kimberly-Clark Corporation (KMB)

This article originally appeared on The DIV-Net August 10, 2009.

Linked here is a detailed quantitative analysis of Kimberly-Clark Corporation (KMB). Below are some highlights from the above linked analysis:

Company Description: Kimberly-Clark Corporation is a global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
   
2. 20-Year DCF Price
   
3. Avg. P/E Price
   
4. Graham Number
   

KMB is trading at a discount to 1.) and 3.) above. The stock is trading at a 23.4% premium to its calculated fair value of $46.65. KMB did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
   
2. Debt To Total Capital
   
3. Key Metrics
   
4. Dividend Growth Rate
   
5. Years of Div. Growth
   
6. Rolling 4-yr Div. > 15%
   

KMB earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. KMB earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1935 and has increased its dividend payments for 37 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
   
2. Years to > MMA
   

KMB earned a Star in this section for its NPV MMA Diff. of the $549. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as KMB has. The stock's current yield of 4.17% exceeds the 3.9% estimated 20-year average MMA rate.

Other:KMB is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The generally static demand for household and personal care products are usually not affected by changes in the economy or political events. Benefits from KMB's 2005 strategic cost reduction program have been over shadowed, for the most part, by higher commodity costs and negative foreign currency translation (2008). Risks include intense competition in developed countries, increased costs of promotions, higher commodity costs, product innovation, foreign currency and decreased consumer acceptance of products.

Conclusion:KMB did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks KMB as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $59.01 before KMB's NPV MMA Differential fell to the $500 that I like to see for a stock with 37 consecutive years of dividend increases. At that price the stock would yield 3.4%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 3.2%. This dividend growth rate is not much different than the the 3.4% used in this analysis, thus providing no margin of safety. KMB has a risk rating of 1.75 which classifies it as a medium risk stock.

KMB was once a stock I was very high on, but that has turned to growing concern. KMB has seen its Debt to Total Capital rise each year from a recent low of 37% in 2006 to 63% in its last interim report. During the same period the dividend growth rate fell from 8.9% in 2006 to 3.4% in 2009. The stock is trading well above its buy price of $46.65. I will continue to monitor the stock for changing conditions For additional information, including the stock's dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in KMB (1.0% of my Income Portfolio).

What are your thoughts on KMB?

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