Kimberly-Clark Shares Gain on Strong Q4 Earnings and FY21 Outlook; Target Price $150

Kimberly-Clark, an American multinational personal care corporation, reported better-than-expected earnings in the fourth quarter of 2020, sending its shares as high as 6.6% on Monday, which was also largely driven by the strong fiscal year 2021 profit outlook.

The company which manufactures sanitary paper products and surgical & medical instruments said its fourth-quarter adjusted earnings per share were $1.69 in 2020 compared to $1.71 in 2019. That was higher than the market expectations of $1.62 per share. The full-year adjusted earnings per share surged 12% to $7.74, up compared to $6.89 a year ago.

Kimberly-Clark said its net sales increased 6% to $4.8 billion compared to the year-ago period, including organic sales growth of 5%.  Full-year 2020 net sales rose 4% to $19.1 billion, with organic sales up 6%.

“We maintain our Buy/lift our price target to $156 post-KMB’s better than expected 4Q/FY21 guidance. The bar was low into print w/ mkt worried about softening POS trends, commodities, and difficult C-19 driven comps. While shares will continue to be tethered -to some degree – to direction of commodities, we see high-end of guidance as achievable, more pricing actions likely in ’21, and valuation as attractive at ~17x P/E (> 25% disc. to peers vs. 20% hist. avg.),” noted Kevin Grundy, equity analyst at Jefferies.

Kimberly-Clark forecasts net sales in 2021 to increase 4 to 6%, including organic sales growth of 1 to 2%.  Diluted net income per share for 2021 is anticipated to be $7.10 to $7.60.  Adjusted earnings per share in 2021 are expected to be $7.75 to $8.00.

Following this upbeat outlook, Kimberly-Clark shares rose as high as 6.6% to $140.94 on Monday. However, the stock fell nearly 2% in 2020.

Kimberly-Clark Stock Price Forecast

Seven analysts who offered stock ratings for Kimberly-Clark in the last three months forecast the average price in 12 months at $150.29 with a high forecast of $177.00 and a low forecast of $130.00.

The average price target represents a 10.09% increase from the last price of $136.51. From those seven analysts, three rated “Buy”, three rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $136 with a high of $175 under a bull scenario and $98 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the health technology company’s stock.

“Kimberly-Clark (KMB) delivered a Q4 EPS beat and better than feared FY21 EPS guidance, but we see low visibility on FY21 given topline uncertainty post-COVID-19 and with lower birth rates, as well as ramping commodity costs,” said Dara Mohsenian, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. Jefferies raised the target price to $156 from $152. BofA lowered price objective to $155 from $165. Kimberly-Clark had its price target reduced by Deutsche Bank to $144 from $150. Deutsche Bank currently has a hold rating on the stock.

In addition, JP Morgan lowered shares of Kimberly-Clark from an overweight rating to a neutral rating and set a $163 price objective on the stock. Berenberg Bank issued a buy rating and a $181.00 price target Barclays restated a buy rating and issued a $167.00 price target.

Analyst Comments

“Kimberly-Clark (KMB) continues to benefit from heightened demand in Consumer Tissue and solid organic sales growth in Personal Care, but KC Professional remains challenged. As we head into FY21, we believe KMB could face higher input costs, rising competitive pressure, and challenges from cycling a difficult comparison,” Morgan Stanley’s Mohsenian added.

“Further, we see limited long-term organic revenue growth of ~1.5%, driven by muted category growth with declining birth rates in the US/developed markets. We view KMB’s ~30% CY21 P/E discount vs. higher growth HPC peers (PG/CL/CHD/CLX) as appropriate considering our lower long-term organic sales growth/EPS outlook.”

Upside and Downside Risks

Risks to Upside: Lower than expected commodity costs (particularly hardwood pulp), higher birth rates drive improved category growth, improving market share trends, greater price realization, and a weakening USD– highlighted by Morgan Stanley.

Risks to Downside: Greater than expected commodity pressure, price promotion drives lower category growth, worsening market share trends, lower KMB price realization, cost-cutting downside, and a strengthening USD.

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