Wells Fargo Just Upgraded Kimberly-Clark To Outperform, But Why?

Shares of Kimberly Clark Corp KMB are up on Tuesday morning after analysts at Wells Fargo upgraded the stock's rating to Outperform. According to a report rolled out early Tuesday, this is based on a long-term view.

The analysts believe that concern over short-term competition from companies like Procter & Gamble Co PG, largely in the U.S., has driven relative valuation, even after their EPS estimate cuts Tuesday, "to levels that imply favorable risk/reward compared to the broader staples group," for what they see as "an under-appreciated emerging markets (EM) growth engine."

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Despite the recent recoil, shares of Kimberly Clark are back to a large valuation discount in relation to its peers.

This suggests "the market is giving no credit for a substantial improvement in underlying relative category growth rates over the past 10 yrs," analysts write.

Wells Fargo trimmed its 2015 and 2016 EPS estimates by $0.15 and $0.16, respectively, to $5.60 and $6.10, correspondingly, on FX, but raised its valuation range to $117-$120, marking a P/E of 19x-19.5x its 2016 EPS projections.