Kimberly-Clark's stock hit by BofA downgrade, while Clorox gets an upgrade

By Ciara Linnane

Consumers may be more willing to trade down to private-label brands and away from Kimberly-Clark's, analysts say

Kimberly-Clark Inc.'s stock fell 1.5% Friday, after BofA Securities downgraded the stock to underperform from neutral and said the outlook for the company's profit margins is uncertain.

Analysts led by Anna Lizzul cut their stock price target to $115 from $135.

"Through 2023, we have seen margin expansion due to benefits from pricing, cost savings, and improvement in input costs," they wrote in a note to clients. " Farther out in 2024, we see the gross margin landscape as less certain as pricing benefits wane and due to possible impacts of higher oil prices on raw material inputs."

The parent to consumer brands including Huggies diapers and Scott and Kleenex tissues (KMB) posted stronger-than-expected profit for its most recent quarter, but sales that fell slightly short of estimates. The company again raised prices, helping restore its gross margin to prepandemic levels.

Kimberly-Clark has long relied on a premiumization strategy that has allowed it to sustain organic sales growth, mostly by raising prices. BofA is now concerned that waning global birthrates and weaker volumes may hurt the company going forward.

"Given KMB's position as a category leader in pricing, we expect consumers may be more willing to trade-down to private label in a more challenging economic environment," said the note.

Separately, BofA upgraded another consumer goods company, Clorox Co. (CLX), to neutral from underperform on Friday, and said its conviction in the company's recovery is growing.

The same group of analysts raised their price target to $150 from $120, equal to about 6% above its current price.

"We see a recovery in volume and shelf space taking shape following impacts from the cyberattack, which we expect will allow Clorox to return to its annual growth rate of +3-5% from its Ignite strategy in F25/F26," they wrote in a note.

Clorox slashed its guidance in October after disclosing a cyberattack from the summer in August, that caused wide-scale disruption of Clorox's operations, including order-processing delays and "significant product outages."

The attack led to shortages of Fresh Step Kitty Litter, which Clorox owns, as well as clean wipes and other cleaning materials.

"We believe initial signs are encouraging and see a balanced risk/reward ahead as Clorox continues to expect a mild recession in F2H24, or early calendar 2024, which may put pressure on consumers," said the note.

The BofA analysts said there were seeing a return to September levels of private-label market share in Clorox's categories, after a spike in October and November.

"We are encouraged by the initial rebound in CLX's share and note that competitors have not benefited meaningfully from the disruption in categories such as cat litter," they wrote.

Clorox's stock was flat on Friday.

Kimberly-Clark's stock has fallen 12% in the year to date, while the S&P 500 SPX has gained 23%.

-Ciara Linnane

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12-15-23 1432ET

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