Monday, August 4, 2008

* Stock Analysis: Kimberly-Clark Corporation (KMB)

This article originally appeared on The DIV-Net July 28, 2008.

Linked here is a PDF copy of my detailed analysis of Kimberly-Clark Corporation (KMB) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: This leading consumer products company's global tissue, personal care and health care 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. If I exclude the high and low valuation and average the remaining two, KMB is trading at a 5.9% premium. KMB had a Star deducted for trading at a premium in excess of 5%.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.
KMB earned one Star in this section for 3.) above. KMB has paid a cash dividend to shareholders every year since 1935 and has increased its dividend payments for 36 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 both available Stars in this section. With a NPV MMA Diff. of $8,952, KMB is well above the $3,000 I look for in a company that is both an Achiever and an Aristocrat. KMB's current yield of 4.19%, exceeds the 20-year expected MMA rate of 4.61%.

Other: KMB is both an S&P 500 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. KMB's 2008 earnings should benefit from the 2005 strategic cost reduction program, but for the most part, it will be over shadowed by higher commodity costs.

Conclusion: KMB lost a Star in the Fair Value section, earned a Star in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a net total of 2 Stars. This quantitatively rates KMB as a 2 Star-Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price could go up to $73.97 before KMB's NPV MMA Diff. drops to the $3,000 NPV MMA Diff. I like to see. At that price KMP would yield 3.14%. Like the analysis on LLY earlier this month, KMB is a 2 Star-Weak stock that is very close to being a 4 Star-Buy. Given KMB's strong NPV MMA Diff., I would be very comfortable initiating a position at $55.50, or 5% above the $52.87 calculated fair value. This would be a $0.49 or 0.9% decrease from KMB recent price of $55.99.

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 do not own shares of KMB (0.0% of my Income Portfolio).

What are your thoughts on KMB?

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