Kimberly-Clark (NYSE:KMB) had strongly repelled market headwinds in the last couple of quarters on the back of its operational efficiencies. Despite the lower pricing environment and currency headwinds, the company continues expanding earnings, amid its cost savings program.
In the latest quarter, its sales decreased 3%, but earnings per share increased nearly 8% over the prior year period, indicating the positive impact of almost $110 million in cost cuttings. However, KMB’s share price declined almost 11% in the last six months, due to traders’ concerns over slower economic growth and challenging market environment.
Currently, Kimberly-Clark’s stock price trades around $114 a share, significantly below its 52-week high of $138 a share. A stronger U.S. dollar has also impacted its financial performance and a share price momentum over the last couple of quarters.
However, after the recent selloff, Kimberly’s shares look undervalued compared to the industry peers. Its stock is currently trading around only 20 times to earnings and 2.3 times to sales, when the industry average is around 26 and 2.8, respectively.
The company’s shares also look undervalued, supported by its strong future fundamentals and earnings growth potential. Goldman Sachs maintains a positive view on Kimberly-Clark with the price target to $145.
Furthermore, the company expects solid growth for the full year. Full-year 2016 organic sales growth is expected to be 2%, while earnings per share anticipated around $5.92 to $6.05 compared with earnings $2.77 per share last year. Moreover, the company is set to make a solid growth in its dividends for FY2017.
KMB’s cash generating potential appears strong enough to offer room for the potential growth in dividends. In the latest quarter, it generated free cash flow of $763 million, when dividend payments were standing around $331 million. Therefore, Kimberly-Clark shares are offering a strong buying opportunity for a defensive investor considering its solid dividends and the potential growth in share price.
The author has no positions in the above mentioned companies.