Unilever vs. Kimberly-Clark: Which Stock is a Better Buy?

Unilever PLC (UL) and Kimberly-Clark Corporation (KMB) are two prominent players in the global fast-moving consumer goods (FMCG) industry. Headquartered in London, U.K., UL offers consumer goods, food, detergents, fragrances, beauty, home, and personal care products. In comparison, KMB in Dallas, Tex., manufactures and markets personal care and consumer tissue products. The company sells its products directly to supermarkets, mass merchandisers, drugstores, warehouse clubs, variety and department stores, other retail outlets, and through other distributors and e-commerce.

Although growing supply chain issues, surging COVID-19 cases, and high inflation caused retail sales to decline in December, the inelastic demand for home, health, food & drinks, and personal care products should enable the FMCG industry to overcome these challenges and perform steadily. This, combined with their consistent quarterly dividend payments, should help UL and KMB attract investors amid the current market volatility. Investor interest in this space is evidenced by the iShares U.S. Consumer Goods ETF’s (IYK) 1.2% returns over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) negative returns. The global FMCG market is expected to grow at a 5.4% CAGR to $15.36 trillion by 2025. So, both UL and KMB should benefit.

While UL stock has declined 5% in price over the past three months, KMB has surged 1.2%. KMB is also a winner with 3.3% gains versus UL’s negative returns in terms of their past nine months’ performance. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On Jan. 25, 2022, UL announced changes to its organizational model by introducing five distinct business groups–Beauty & Wellbeing; Personal Care; Home Care; Nutrition; and Ice Cream. Its objective is to be a simpler, more category-focused business. Supported by Unilever Business Operations, the business groups will be provided the technology, systems, and processes to drive operational excellence across the industry and enable it to be more responsive to consumer and channel trends.

UL paid a $0.50 per ADS quarterly dividend on Dec. 1, 2021. The stock pays a $1.99 per ADS dividend annually, translating into a 3.88% yield. Its dividend has grown at a 7.69% rate over the past five years.

On Dec. 29, 2021, KMB’s China subsidiary and Dada Group (DADA), China’s leading local on-demand delivery and retail platform, signed a strategic cooperation agreement for 2022 to help Kimberly-Clark China stimulate new growth in the health care, maternal, and baby products categories through DADA’s Shop Now retail platform’s omnichannel strategy, supply optimization, marketing promotion, regional coordination, and tripartite collaboration. KMB is looking forward to witnessing a strong increase in sales on the JDDJ and Shop Now platforms this year.

KMB declared a $1.16 per share quarterly cash dividend on Jan.26, 2022, that  will be paid on April 4, 2022. The stock pays a $4.64 per share dividend annually, translating into a 3.44% yield. Its dividend has grown at a 4.38% rate over the past five years.

Recent Financial Results

UL’s net sales for its fiscal year 2021 third quarter, ended Sept. 30, 2021, increased 4.1% year-over-year to €13.45 billion ($15.05 billion). The company’s sales for its beauty and personal care segment came in at €5.69 billion ($6.37 billion), up 6.4% from the prior-year period. And sales from the foods & refreshment segment were  €5.13 billion ($5.73 billion), representing a 2.7% year-over-year improvement.

For the fiscal 2021 fourth quarter, ended Dec. 31, 2021, KMB’s net sales increased 2.7% year-over-year to $4.97 billion. The company’s net sales from the Consumer Tissue segment decreased 9.7% year-over-year to $1.56 billion. Its non-GAAP gross profit came in at $1.49 billion, representing a 12.7% decline from the prior-year period. Its non-GAAP operating profit was $611 million, down 20.3% from the prior-year period. And KMB’s non-GAAP net income was  $439 million for the quarter, indicating a 23.8% year-over-year decline. Its non-GAAP EPS decreased 23.1% to $1.30. And the company had cash and cash equivalents of $270 million as of December 31, 2021.

Past and Expected Financial Performance

Over the past three years, UL’s EBIT and levered free cash flow have grown at CAGRs of 1.1% and 51.8%, respectively.

UL’s EPS is expected to grow 9.3% year-over-year in its fiscal year 2022, ending Dec. 31, 2022. The company’s revenue is expected to increase 4.4% year-over-year in fiscal 2022.

In comparison, KMB’s EBIT and levered free cash flow have decreased at CAGRs of 2% and 20.7%, respectively, over the past three years.

Analysts expect KMB’s EPS to grow 7.3% year-over-year in its fiscal year 2022, ending Dec. 31, 2022. Its revenue is expected to grow 2.8% year-over-year in its fiscal 2022.

Valuation

In terms of non-GAAP forward PEG, KMB is currently trading at 10.55x, which is 163.1% higher than UL’s 4.01x. In terms of forward EV/Sales, KMB’s 2.79x compares with UL’s 2.72x.

Profitability

UL’s trailing-12-month revenue is almost 3.1 times KMB’s. UL is also more profitable, with a 43.5% gross profit margin versus KMB’s 32.9%.

Furthermore, UL’s 20.3% and 13.7% respective EBITDA and levered free cash flow margins compare favorably with KMB’s 19.6% and 5.2%.

POWR Ratings

While UL has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, KMB has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

In terms of Stability, both UL and KMB have been graded a B, which is in sync with their  lower volatility than the broader market. UL has a 0.17 beta. KMB has a 0.52 beta.

Both UL and KMB have C grades for Momentum, which is consistent with their mixed price performance over the past year.

And in terms of Sentiment, UL has been graded a C, which is consistent with analysts’ slightly lower estimates regarding its revenue growth. However, KMB’s D grade for Sentiment is in sync with analysts’ expectations that its EPS will decline 25.8% from the prior-year period to $1.34 for its fiscal 2022 first quarter, ending March 31, 2022.

Of 65 stocks in the Consumer Goods industry, UL is ranked #12, KMB is ranked #32.

Beyond what we have stated above, our POWR Ratings system has also rated UL and KMB for Growth, Value, and Quality. Get all UL ratings here. Also, click here to see the additional POWR Ratings for KMB.

The Winner

Inelastic demand in the FMCG market and the offering of regular quarterly dividends should help both UL and KMB attract significant investor interest amid the current market uncertainty. However, we think better analyst sentiment makes UL a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Consumer Goods industry.

UL shares were trading at $51.35 per share on Thursday afternoon, up $0.04 (+0.08%). Year-to-date, UL has declined -4.54%, versus a -8.40% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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