Kimberly-Clark Corporation

budlab — Tue, 29 Jul 2008 23:44:18 -0400

Kimberly-Clark Corporation is a global health and hygiene company. The Company is engaged in the manufacturing and marketing of a range of health and hygiene products around the world. The segments of the Company include Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care. During the year ended December 31, 2007, the Company acquired the remaining 50% interest in its Indonesian subsidiary, P.T.

Kimberly-Clark, KMB has a (5-year annual average) net income growth rate of 2.29 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does KMB have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

KMB has a current market price is 57.46 Using an assumed growth rate of 6 percent, the estimated Intrinsic Value is 87.11 per share from ValuePro.net, and this may or may not indicate a bargain of 30 dollars. Is it a possible Value Trap? If the growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .66 , and a possible margin of safety of 34 percent.

The current price/earnings ratio = 13.5
It's current return on capital = 14.41
Using a debt to equity ratio of 0, Kimberly-Clark shows a current return on equity = 32.2

Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Does Kimberly-Clark make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is KMB the best place to invest our money today? What about growth in Free Cash Flow?

Excerpts, comments, and news items: http://finance.yahoo.com/q/h?s=KMB

As always, I appreciate hearing your views about a company's competitive position and brands.

Bud Labitan
www.frips.com

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Kimberly-Clark Corporation