In my last post I asked a question: Is flat YTD performance an opportunity? And I answered KMB is a good and long lasting business, but currently I see no reason to buy shares. Well, now the question is: Is some -10% YTD an opportunity?

Let’s try to answer.

First valuation (on next year consensus):

EV/EBITDA = 11

P/E = 18

Dividend yield = 3.4%. Company is guiding on $2.1b return to shareholders via dividends & buyback, so return yield around 5%.

Well, valuation is getting more and more attractive. Big consumer businesses are traded a little bit higher, 12-13 EV/EBITDA.

How is business going?

As you can imagine, there is always a reason for share price to go down. In this case from around $136 to around $113 so around 17% drawdown. Not bad, but business dynamics are low, especially on top line we can see a decline.

image001

On the other hand profitability is growing, which is good indicator for future dividends. With slower growth of top line company decided to reduce outlook.

image002

Still reducing top end of guidance by 10 cents is not a big difference. Even if you multiply it by 18 (P/E ratio), then share price should go down by 1.8$ and declines were far bigger.

 

Summing up, valuation of KMB is getting more and more attractive. Short term remember that trend is your friend and trend is still negative. Moreover I guess that strong USD is a headwind for company (global business). My previous investable level was set at $100. Be patient. Be ready. Remind me to buy when investable level will be achieved!

 

Disclaimer KMB – no position