We believe that Kimberly-Clark shares (NYSE: KMB) is currently a better choice than the tobacco company, Altria shares (NYSE: MO) because it is better valued. The decision to invest often comes down to finding the best stocks within certain characteristics that fit an investment style. In this case, although these companies are from different industries, they have a similar revenue base of around $20 billion and both are defensive consumer staples stocks.

Although Kimberly-Clark has posted better revenue growth, Altria is more profitable. Additionally, KMB stock trades at 20 times forward earnings, while Altria stock is worth just 10 times. We believe this valuation difference will remain in Kimberly-Clark’s favor for years to come. The comparison goes further, and in the following sections we discuss why we believe KMB will outperform MO over the next three years. We compare a number of factors, such as historical revenue growth, returns, and valuation.

1. Altria shares have performed slightly better than Kimberly-Clark over the past three years

KMB stock has gained 20% from $120 in early January 2021 to around $145 now. In comparison, MO stock has gained 25%, while the broader S&P500 has risen 50% over that period. However, the rise in KMB and MO stocks has been far from consistent. Returns for KMB stock were 10% in 2021, -2% in 2022, and -7% in 2023, while returns for MO stock were 16%, -4%, and -12%, respectively, during those years. In comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that KMB and MO underperformed the S&P in 2021 and 2023.

Actually, consistently beats the S&P 500 – in good times and bad – has been difficult for individual stocks in recent years; for heavyweights in the consumer goods sector such as WMT, PG and COST and even for megacap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; it was less of a rollercoaster ride, as evidenced by the HQ portfolio’s performance metrics.

2. Kimberly-Clark’s sales growth is better

Sales growth at Kimberly-Clark was better, with a 2.2% average annual growth rate over the last three years compared to -0.5% for Altria.

Altria sells its tobacco products in the U.S. markets. Due to supply disruptions, the company’s revenue growth has been impacted during the pandemic. Altria also sold its wine business for $1.2 billion in 2021 and increased its focus on smoking and smoke-free products. Due to higher inflation, the company has seen a decline in cigarette volume recently, a trend that is expected to continue in the future. For comparison, smokable product volume declined 9.6% year over year to 86.4 billion sticks in 2022 and another 9.8% to 76.3 billion sticks in 2023. However, price growth is helping the company offset most of the revenue loss from volume. Altria is also benefiting from its relatively new smoke-free products, including NJOY and on!

At Kimberly-Clark, sales growth is due to better price realizations. The company primarily manufactures paper-based consumer goods and produces tissue paper products as well as surgical and medical instruments. The personal care segment accounted for approximately 52% of the company’s sales in 2023, contributing $10.7 billion to total revenue. Although the company is benefiting from price increases for its products, volume growth has been muted recently.

Looking at the last twelve months, both companies recorded a decline of Altria Revenue Comparison And Sales comparison between Kimberly and Clark Dashboards provide more insight into company revenue.

3. Altria is more profitable, but Kimberly-Clark offers lower risk

Altria’s reported operating margin increased from 52.1% in 2020 to 56% in 2023. In comparison, Kimberly-Clark’s operating margin shrank from 16.9% To 14.7% during this period. Looking at the last twelve months, Altria’s operating margin was 56.3% performs much better than 14.6% for the latter.

Kimberly-Clark fares better in terms of financial risk. While Altria’s 29% The share of debt in equity is higher than 16% for Kimberly-Clark, its 5% The share of liquid assets is also slightly below 7% for the latter. This means that Kimberly-Clark has a better debt position and a larger cash cushion.

4. The web of everything

We see that Kimberly-Clark is posting better revenue growth and has a better financial position. On the other hand, Altria is more profitable. Now, looking at the outlook, we believe Kimberly-Clark is the better choice of the two. At its current level, MO stock trades at 10x forward earnings of $5.13 per share and adjusted in 2024. 10x is slightly higher than the average of 9x over the past four years. In comparison, at its current level of around $145, Kimberly-Clark stock trades at nearly 20x forward earnings of $7.32 per share for 2024. This compares to 21x the average P/E for KMB over the past four years.

Although KMB could outperform MO in the next three years, it is helpful to see how Kimberly-Clark colleagues Comparisons of important key figures. You can find further valuable comparisons for companies in various industries at Comparisons with other providers.

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