Shares in consumer health group Kimberly-Clark (KMB) dropped again today as a leading analyst downgraded the stock after its “bold” $48.7 billion acquisition of peer Kenvue (KVUE).
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Potential Risks
Javier Escalante of Evercore ISI said the “story has changed” as he moved his rating on KMB from Outperform to In Line. He has a price target of $120 on the stock, down from $150.
Earlier this week Kimberly-Clark, whose brands include Huggies diapers and Kleenex tissues, said it was paying $21.01 a share based on Kenvue’s closing price of $14.37 last Friday.
Kimberly-Clark said the deal would bring together two iconic American companies to create a combined portfolio of complementary products, including 10 billion-dollar brands.
It is expected to have annual revenues of approximately $32 billion.
However, it does potentially open KMB up to some hefty risks as a result of Kenvue’s ownership of pain-relief medication Tylenol – known as paracetamol in some countries outside of the U.S.- and its alleged links to autism.
Competition Concerns
The U.S. government recently updated healthcare guidance for pregnant women last month to avoid taking Tylenol due to its potential ties to autism. While some studies have found a connection between women taking Tylenol while pregnant and their children developing autism, other studies have come to different conclusions.
Since announcing the deal earlier this week, the KMB stock has fallen over 10%. “Kimberly-Clark’s strategic pivot has led us to reassess our stance. The decision introduces several complexities and risks that could overshadow potential benefits in the near term,” Escalante said. “It is a bold move expanding its scale and scope significantly. However, this shift from a stable restructuring story to one with numerous moving parts raises concerns.”
He added that the integration could face headwinds as Kimberly enters markets dominated by “focused competitors” like L’Oreal and Colgate (CL) and legal issues with potential liabilities from Tylenol safety label changes posing significant headline risks.
However, he did say that tapping into the Personal Hygiene and Consumer Health sectors could yield cash-generative opportunities.
The deal is expected to close in the second half of next year.
Is KMB a Good Stock to Buy Now?
On TipRanks, KMB has a Hold consensus based on 3 Buy, 9 Hold and 1 Sell ratings. Its highest price target is $162. KMB stock’s consensus price is $119.75, implying a 19.77% upside.
