Competition for Kimberly-Clark

Kimberly-Clark Corporation (KMB - Analyst Report) has strong consumer brands and is well respected for product innovation, especially in the diaper category. Rising raw material costs, weak European operations, and competitive pressures are constraining earnings growth despite the company's progress on three cost savings programs - FORCE, the Global Business Plan, and the Strategic Cost Reduction Plan.

The company has strong free cash flow. It has repurchased shares, financed in part by the issuance of debt, in order to achieve EPS growth targets. However, in the attempt to balance growth and profitability, the management faces many challenges, especially as Procter & Gamble (PG - Analyst Report) poses a significant market-share threat to the diaper business.

Rising commodity costs, especially fiber and pulp, are now compressing both the gross margin and operating margin expansion. Also, management is spending heavily on marketing and advertising in 2008, which may further compress the operating margin. The stock is rated a Hold.

Kimberly-Clark stock has traded in a P/E range of 13 to 22 over the last five years. The stock is currently trading at 14.2 times trailing 12 month earnings. At the current P/E, we do not expect the stock to outperform until pressures from rising commodity costs abate. The target price of $66.75 is based on a P/E of 15.5 times trailing 12 month earnings.

Read the full analyst report on KMB

Read the full analyst report on PG