Kimberly Clark Catches A Downgrade Ahead Of A 'Double Hazard'

Amid heightened competition, rising costs of raw materials, and a weak selling environment, Kimberly Clark Corp KMB lost the confidence of JPMorgan.

Analysts expect margin pressures and decelerating revenue to cripple the firm’s earnings power potential and thus issued a 2018 earnings per share estimate of $6.09 against management guidance between $6.20 and $6.35.

What’s Going Wrong?

Kimberly Clark is conceding U.S. market share in most product categories, and with retailers opting for more affordable private labels and rival Procter & Gamble Co PG attempting to prove itself under activist-investor pressures, competition is likely to intensify.

At the same time, the firm continues to struggle in international markets, particularly with a recent Procter & Gamble product launch in China.

“We believe soft top-line trends will be exacerbated by cost pressure from rising pulp and resin prices,” analysts Andrea Teixeira, Christina Brathwaite and Peter Grom wrote in a Friday note. “Input cost inflation will likely more than offset cost reduction efforts via the FORCE program, in our view.”

The Bottom Line

JPMorgan downgraded Kimberly Clark to Underweight and lowered its price target from $135 to $100, noting thesis risk in the potential for large-scale private label contracts with the likes of Amazon.com, Inc. AMZN.

At time of publication, shares were trading down 1.8 percent at a rate of $113.49.

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