Focusing On Branded Products And Supply Chain Transformation Will Improve Operational Efficiency

Key Takeaways

• Focus on innovation and execution could enhance market share and boost revenue and earnings.
  
• Exiting private labels and supply chain improvements may enhance margins and operational efficiency.
  
• Supply chain disruptions, demand volatility, and strategic market exits may pressure revenue growth and earnings, with investment risks potentially impacting net margins.

Catalysts

Manufactures and markets personal care and consumer tissue products in the United States.

• Kimberly-Clark's strategic focus on innovation and commercial execution is expected to drive consumption and market share growth, which could positively impact revenue and earnings.
  
• The successful completion of a new organizational structure aims to make Kimberly-Clark a faster and stronger entity, potentially improving operational efficiencies and net margins.
  
• Exiting private label businesses is expected to streamline operations and allow the company to focus resources on its proprietary branded products, likely enhancing gross margins and long-term revenue growth.
  
• Transformation within the supply chain is delivering strong productivity gains, which are expected to continue, thereby supporting gross margin improvements.
  
• Planned increases in investments in brand support and advertising are aimed at driving volume and mix-led growth, which could help sustain top-line revenue growth despite pressures from potential pricing adjustments.

Kimberly-Clark Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kimberly-Clark's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.0% today to 13.4% in 3 years time.
• Analysts expect earnings to reach $2.8 billion (and earnings per share of $8.18) by about December 2027, up from $2.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.7x on those 2027 earnings, up from 16.8x today. This future PE is lower than the current PE for the US Household Products industry at 25.7x.
• Analysts expect the number of shares outstanding to grow by 0.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Kimberly-Clark Future Earnings Per Share Growth

Risks

• Retail inventory reductions and lower-than-anticipated demand in private label and professional channels may create pressures on growth, impacting revenue and net sales.
  
• Factors such as supply chain disruptions, like the packaging supplier issue, and natural events like hurricanes, have led to shipment volatility, affecting revenue and sales consistency.
  
• Weaker demand in international markets and professional channels, with specific mentions of Asia and Latin America, could pressure revenue growth and challenge earnings on a global scale.
  
• Exiting private label businesses and upcoming exits in certain markets may lead to short-term revenue decreases and create a headwind for growth in earnings.
  
• Increased investment in innovation and brand support, while essential for growth, may pressure net margins if these investments do not yield the anticipated sales improvements.

Valuation

• The analysts have a consensus price target of $149.83 for Kimberly-Clark based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $175.0, and the most bearish reporting a price target of just $125.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $20.9 billion, earnings will come to $2.8 billion, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 5.9%.
• Given the current share price of $131.14, the analyst's price target of $149.83 is 12.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.