Kimberly-Clark Earnings: Margin Gains Tempered in Favor of Brand Spending; Shares Not a Bargain

Narrow-moat Kimberly-Clark bucked macro and competitive headwinds in the first quarter to post 5% organic sales growth and 340 basis points of expansion at the gross margin line to 33.2%. In light of these results, management bumped up its fiscal 2023 adjusted EPS growth forecast to 6%-10% (from 2%-6%), though its 2%-4% organic sales outlook is unchanged. While we’ll edge up our near-term gross margin expectation, our $133 fair value estimate shouldn’t move (beyond a $1-$2 bump for time value). However, we think investors should remain on the sidelines, with shares trading at nearly a 10% premium to our intrinsic valuation.