Kimberly-Clark Corporation: $KMB Cash Flow Valuation Update

Current Price: ~ $72/share
Projected Yield: ~ 4.14%



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.           

Estimated WACC for the firm today is 4.36% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2002	1554
2003	1735
2004	2435
2005	1602
2006	1607
2007	1440
2008	1610
2009	2633
2010	1780
2011	1320

Average Annual Growth FCF: ~ 3%

CAGR FCF: ~ -2%

Consensus Forecast Industry 5-Year Growth: ~ 13% per year

Consensus Forecast Company 5-Year Growth: ~ 6% per year

Internal Growth Rate: ~ 2%

Sustainable Growth Rate: ~ 9%

Scenario 1

• Start at $1320 million FCF
• Assume a 5-year growth rate in FCF of 6% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1320
1	1399
2	1483
3	1572
4	1666
5	1766
Terminal Value	42952

The firm's future cash flows, discounted at a WACC of 4.36%, give a present value for the entire firm (Debt + Equity) of $41618 million. If the firm's fair value of debt is estimated at $7057 million, then the fair value of the firm's equity could be $34561 million.  $34561 million / 394 million outstanding shares is approximately $88 per share and a 20% margin of safety is $70/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 3% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1320
1	1360
2	1400
3	1442
4	1486
5	1530
Terminal Value	36156

• Present Value of the entire firm (Debt + Equity): $35556 million
• Value of Equity: $28499 million or $72/share
• 20% margin of safety is $58/share

Sources

Morningstar.com

Yahoo! Finance

Kimberly-Clark.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Kimberly-Clark: $KMB valuation update

Kimberly-Clark ($KMB) filed a 10K annual report for 2010 recently so here's an update to the cash flow valuation I posted February 1.  This update incorporates the firm's year-end 2010 data.  I believe $KMB is undervalued now at $66/share and fairly valued at $82/share on a cash flow valuation basis.    

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%

Consensus Forecast Industry 5-Year Growth: approx. 13% 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

Kimberly-Clark.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Kimberly-Clark: fairly valued with a margin of safety

I believe $KMB, at approximately $65/share is fairly valued with a margin of safety on a cash flow valuation basis.

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.
(Source: Morningstar.com)

Kimberly-Clark Announces Year-End 2010 Results, 2011 Outlook and Actions to Enhance Shareholder Value

I estimated the firm's WACC at 7.06% using the Capital Asset Pricing Model and the company's recent SEC filings.  ValuePro has a baseline WACC calculator here and it calculates the firm's WACC at 6.36%.  I'll assume the slightly higher mark, 7.06%.  

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%
Consensus Forecast Industry 5-Year Growth: approx. 11% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year

Assuming the company achieves a slightly lower 5-year growth rate of 8% per year, and assuming that after the next five years, the company achieves no growth or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $ Millions
0	1780
1	1922
2	2076
3	2242
4	2422
5	2615
Terminal Value	40033

The firm's future cash flows, discounted at a WACC of 7.06%, give a present value for the entire firm (Debt + Equity) of $37,598 million. If the firm's fair value of debt is estimated at $7,000 million, then the fair value of the firm's equity could be $30,598 million.

$30,598 million / 407 million outstanding shares is approx $75 per share. A 20% margin of safety from here is approx $60 so assuming all else at $KMB meets my standard for good business, I'd buy it today for the long term at $60 or less.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.