Kimberly-Clark KMB management doesn't understand the rules. Don't they know that Kimberly is just a dumb bond-market-equivalent play? Don't they know there's not supposed to be any real growth? Don't they know that the company is overvalued and helpless? Don't they know, most of all, that they aren't supposed to take radical action to bring out shareholder value, like they did last night when they annoucned a spin-off of the company's capricious healthcare unit?
That kind of value creation isn't supposed to happen. It's downright unfair to the bears!
Sometimes I actually feel these are the thoughts that go through the minds of those people who think the only thing that matters to the rising prices of stocks is what the Federal Reserve does. The thinking goes like this: Without lower rates, no one would pay 19x earnings for a 5% grower, and Kimberly is only where it is because of that higher dividend.
That's why, for example, of the nine major Wall Street firms that follow Kimberly, there isn't a single buy recommendation. There are six holds and three sells. This for a $42 billion company with fantastic brands whose shares have risen 30% so far this year.
There's no sponsorship whatsoever here, and I believe this is partly because the analysts are just waiting for the Fed to taper quantitative easing and for the stock to fall apart.
In the meantime the company, led by the terrific Tom Falk, is constantly trying to figure out how to bring out value in a slower-growth environment. Kimberly is a relentless cost-taker-outer. It is willing to end price wars if necessary by walking away from lower-margin business, as it did in Europe not long ago. Now it is even willing to part with a business that was, at one point, viewed as integral to the diversification away from tissue and diapers, yet has by now developed into a hard-to-manage play that brings down the entire growth rate of the company.
These analysts, and the negativists about Kimberly, seem to not understand the power of the coach to change up the team. They look at Kimberly as this static beast. They don't see that the company's goal is to return capital to shareholders in an aggressive way while still funding all the profitable growth that is necessary. The company gets little to no credit from the analysts for what it has done. But the stock itself has been a horse because of all of the actions it has taken, including a consistent boosting of the dividend while it has shrunk the share count by about 8% over the last few years.
Kimberly-Clark is an illustration of why this market is such a tough short. People keep leaving Kimberly, and analysts don't trust it, because of that future tapering. As for Kimberly's management, it doesn't care about tapering either way. It cares about bringing out value, as it did last night. Given the track record, I am siding with management. But, then again, what do I know? I am just a small-minded guy who pays attention to the work Tom Falk does -- not to the work of the big-time strategists who hang on the word of every Fed minion out there. I guess I am just old-fashioned, both in my style and in my belief that what matters isn't sounding smart -- it's making money.
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