Is Kimberly Clark Corp Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Kimberly-Clark (KMB 0.01%) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Kimberly-Clark's story, and we'll be grading the quality of that story in several ways:

• Growth: are profits, margins, and free cash flow all increasing?
• Valuation: is share price growing in line with earnings per share?
• Opportunities: is return on equity increasing while debt to equity declines?
• Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Kimberly-Clark's key statistics:

KMB Total Return Price data by YCharts.

Source: YCharts. *Period begins at end of Q1 2011.

KMB Return on Equity (TTM) data by YCharts.

Source: YCharts. *Period begins at end of Q1 2011.

How we got here and where we're going
Kimberly-Clark puts together a solid performance for an old consumer standard by racking up five out of nine possible passing grades. However, the four failures should be worth watching closely. There's nothing wrong with the company's profitability -- except for the fact that Kimberly-Clark's share price has raced far ahead of its bottom-line growth. Revenue growth has been anemic, which is a problem plaguing many diversified consumer-goods companies at the moment. Kimberly-Clark has also been paying out a significant amount of its free cash flow as dividends, which is hardly problematic now but could become an issue during an economic downturn. Can Kimberly-Clark fix these problems and approach a perfect score next year? Let's dig deeper to find out.

Kimberly-Clark's latest earnings were somewhat underwhelming, as the company's revenue fell year over year despite a 3% increase in global product volume. The company continues to improve EPS through a combination of efficiency gains and share repurchases -- its share count has fallen nearly 5% during our three-year tracking period.

Falling revenue is also a problem for peer Procter & Gamble (PG 0.49%), which saw a narrow year-over-year decline on its top line during the same quarter, and yet managed to improve EPS with a similar combination of efficiency gains and share repurchases. Both companies have nonetheless stuck to guidance that calls for below-inflation growth on the top line (about 1% in each case). Smaller rival Clorox (CLX 1.26%) managed to nudge its revenue a hair higher year over year during the first quarter, but that doesn't mean it will continue the trend for the rest of 2014, since its recent revenue history has been the weakest of these three consumer-goods stalwarts:

KMB Revenue (TTM) data by YCharts.

Investors can (and often do) look past a weak top line if a company can prove adept at boosting shareholder returns. Investors have been more than willing to give Kimberly-Clark a pass as long as it maintains its streak of annual dividend growth, which is now in its 42nd consecutive year. Few companies can match this dedication, but Clorox's 37-year streak comes close, and P&G's 58-year streak blows it away entirely. Over the past decade, Kimberly-Clark's nominal dividend growth has lagged quite a bit behind both P&G's and Clorox's, and its yield, which had been the highest of the three for most of that time, recently slipped into third place:

KMB Dividend data by YCharts.

KMB Dividend Yield (TTM) data by YCharts.

Kimberly-Clark's biggest move in years will take place by the end of 2014, when it completes its planned spinoff of its health care segment as Halyard Health. This move is designed to jettison Kimberly-Clark's "dead weight," as its health care segment -- the smallest of Kimberly-Clark's four operating segments -- is not growing its top line, and its recent surge in operating profit was driven by across-the-board spending cuts, which were primarily made up of reduced marketing and R&D expenses, telltale signs that a company is giving up on the future. This spinoff might improve Kimberly-Clark's profitability, but it may not do a thing to change the company's overall image, since no other operating segment managed to improve both its top and bottom lines year over year in the latest quarter.

Putting the pieces together
Today, Kimberly-Clark has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.