Morgan Stanley To Kimberly-Clark Investors: These Headwinds Are Too Notable To Ignore

Personal care giant Kimberly Clark Corp KMB, the parent company behind brands like Kleenex and Huggies disposable diapers, faces fundamental pressures that will grow over the years, according to Morgan Stanley.

The Analyst

Morgan Stanley's Dara Mohsenian initiated coverage of Kimberly Clark's stock with an Underweight rating and $94 price target.

The Thesis

Kimberly Clark's multiple headwinds include a growing competitive environment especially in the large diaper category, a "refocused" rival in Procter & Gamble Co PG, retailers pushing their own private labels and competition in China where Kimberly Clark has a presence.

These headwinds are confirmed by Euromonitor, whose data shows the company's market share in all of its product categories have been declining at an accelerating rate since 2013, the analyst said.

The company's pressure points could result in the company's longer-term financial metrics falling short of expectations. Organic top line growth beyond fiscal 2018, for example, could come in at just 1-1.5 percent versus management's own 3-5 percent long-term target and a 2.25 percent consensus estimate through fiscal 2020.

There's not only risk to Kimberly-Clark missing its fiscal 2018 EPS guidance, but the company could see 4-5 percent of potential EPS downside versus consensus estimates throughout at least the next three years.

Price Action

Shares of Kimberly Clark were down about 1.6 percent at $99.98 Thursday afternoon.

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