Kimberly-Clark is a leading player in the global health and hygiene category selling bathroom tissues, diapers, feminine products, and paper towels. Its brands include Kleenex, Scott, Huggies, Pull-Ups, and Kotex. Kimberly sells its products directly and distributes them through supermarkets, mass merchandisers, and drugstores, among other outlets. Sales generated outside of North America account for about 45% of the firm's consolidated sales base.
I estimated the firm's WACC today at 6.94% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year | FCF $Millions |
2000 | 963 |
2001 | 1154 |
2002 | 1554 |
2003 | 1735 |
2004 | 2435 |
2005 | 1602 |
2006 | 1607 |
2007 | 1440 |
2008 | 1610 |
2009 | 2633 |
2010 | 1780 |
Average Annual Growth: approx 11%
CAGR: approx. 6%
CAGR: approx. 6%
Consensus Forecast Industry 5-Year Growth: approx. 13% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
Year | FCF $ Millions |
0 | 1780 |
1 | 1940 |
2 | 2115 |
3 | 2305 |
4 | 2513 |
5 | 2739 |
Terminal Value | 43011 |
The firm's future cash flows, discounted at a WACC of 6.94%, give a present value for the entire firm (Debt + Equity) of $40,179 million. If the firm's fair value of debt is estimated at $7000 million, then the fair value of the firm's equity could be $33,179 million. $33,179 million / 404 million outstanding shares is approximately $82 per share and a 20% margin of safety is $66/share.
All else being equal, if you assume a lower 5-year growth rate in FCF of 6% per year (instead of 9%) with 0% growth thereafter, the fair value for $KMB on a cash flow valuation basis is $69/share and a 20% margin of safety is $55/share.
Sources
Morningstar.com
Morningstar.com
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.