Kimberly-Clark: Commitment to Consumer-Valued Innovation and Cost Control Holds; Shares Undervalued

Narrow-moat Kimberly-Clark's investor day heightened our confidence in the firm's ability to meet our long-term forecasts as it charts a more defined path forward. More specifically, Kimberly intends to capitalize on cost savings and drive efficiencies by deploying new technologies, rationalizing stock-keeping units, modernizing supply chains, and strategically realigning its organizational structure to prudently fuel persistent consumer-led innovation and enhance margins. Overall, these initiatives are expected to yield over $3 billion in gross productivity gains, $200 million in selling and administrative savings, and $500 million in working capital improvements. This is balanced against a one-time $1.5 billion restructuring charge, half of which is in cash, over the next three years. Against this backdrop, management unveiled a long-term outlook that anticipates organic sales to grow ahead of the market’s low-single-digit rate, mid- to high-single-digit increases in adjusted operating profit and EPS, and a minimum of $2 billion in annual free cash flow. All of this aligns closely with our forecast, while fiscal 2024 expectations were unchanged. As such, we don’t plan much change to our $139 fair value estimate and view shares as attractive.