With Wall Street in the red again, it seems this market is for the birds. Unless you're a vulture, of course.
Sitting on my perch, wings outstretched, I've seen a lot of exciting action. Depressing warnings, high costs, and economic conditions have driven many stocks to new 52-week lows. But I'm not crying -- I'm thinking about buying.
If that's the case for Kimberly-Clark, can this phoenix rise again? Inflated costs of raw materials such as fiber and oil-based resins may likely batter the company's share price even further. Furthermore, higher energy prices will likely take their toll on production and distribution costs. But Kimberly Clark won't just roll over and play dead.
The company plans to boost R&D spending 50% by 2009 to identify potential growth opportunities. In addition, the company has swooped into new markets with products such as Anti-Viral facial tissues and recently announced potty-training resources. Kimberly-Clark has also enjoyed great success internationally, with consumer tissue sales alone increasing 18% last quarter.
Financially, Kimberly-Clark is sound. Free cash flow has nearly doubled since 2002, with 2004 producing about $1.4 billion in FCF, generated by $2.7 billion in cash from operations. Slowing acquisition expenditures have let the company send cash shareholders' way, with stock repurchases of $1.5 billion in 2005 and a dividend yield over 3% -- the third year in a row for double-digit dividend increases. The company also has roughly half a billion dollars in cash on the balance sheet and a long-term debt-to-capital ratio near 28%.
Kimberly-Clark is solid indeed. With resin, pulp, oil, and natural gas among its key raw materials, the company's feathers could get plucked a few more times. But with the stock trading near a historically low P/E of 15 and a forward P/E just under 14, long-term investors may want to swoop in for the kill. A long-term buy-and-hold strategy may just have investors wiping away tears of joy in a few years.
Further tear-jerking Foolishness:
Fool contributor M.D. Mitchell is down the street at the local junkyard looking for some good trash. His four children are helping him celebrate 10 years of buying diapers, no doubt fueling KMB's growth. He holds no financial position in any of the above companies.