Kimberly Clark Corp (KMB): Four Reasons to Give This Blue Chip Another Look

A third positive behind Kimberly-Clark’s stock is analysts generally expect reasonably strong earnings growth over the next several years. In fact, of its peer group the only company offering a stronger expected growth rate is Colgate-Palmolive at around 9%. However, with competitors like Clorox and Procter & Gamble expected to grow EPS by 7.2% and 7.6% respectively, Kimberly-Clark’s 7.8% expected growth rate looks pretty good.

Can Investors Clean up With This Stock?

We’ve already seen that Kimberly-Clark offers a decent yield, good growth in earnings, and strong organic growth. While the company isn’t the best in any of these three categories, the combination of these traits seems better than their peers. If investors are looking for proof that Kimberly-Clark is a better value, the PEG + Y ratio can provide that assurance.

Peter Lynch used the PEG + Y ratio to compare companies using both their dividend yield and their expected growth rate. Unlike the PEG ratio, the higher the number the better. A high PEG + Y ratio suggests a better combination of growth and income relative to the stock’s valuation.

Kimberly-Clark’s 3.2% yield and 7.8% expected growth rate compares favorably to the stock’s roughly 17 P/E ratio. Using these numbers, the company’s PEG + Y ratio is 0.64. While Lynch’s ideal was a ratio above one, Kimberly-Clark has the best ratio of its peer group.

By comparison, Clorox scores a 0.53 because of its slightly higher yield but lower growth rate and higher P/E ratio. Procter & Gamble scores a 0.54, because the stock has a lower yield, lower growth rate, and higher P/E ratio. Colgate-Palmolive finishes second, because the company’s lower yield, but faster growth rate, somewhat offsets the company’s P/E ratio of over 20.

In the end, Kimberly Clark Corp (NYSE:KMB)’s better valuation is the fourth reason investors should consider adding this stock to their Watchlist. The company is not the most exciting in its industry, won’t get a lot of attention from the press, and may not seem exciting, but over time the stock’s returns should be anything but boring for long-term investors.

The article 4 Reasons to Give This Blue Chip Another Look originally appeared on Fool.com and is written by Chad Henage.

Chad Henage owns shares of Colgate-Palmolive. The Motley Fool recommends Kimberly-Clark and Procter & Gamble. Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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