Kimberly-Clark (NYSE:KMB) shares rose higher at the market open on Thursday after the stock received an upgrade from Bank of America.
The bank’s analysts raised their rating on KMB shares from Underperform to Buy, and lifted the price objective to $160 from $115.
“Following KMB’s volume inflection in Q1 after two years of volume declines, we see the beginning of a longer-term improvement taking hold in-line with the company’s initiatives from its March 2024 Investor Day,” analysts said.
BofA now expects a more favorable outlook for the consumer goods and personal care company as it aims to decouple its gross margin from the costs of pulp and energy inputs, thereby enabling more consistent margin expansion.
Moreover, the firm is expected to increase market share, particularly in the premium tier, “and convert market share from competing brands in mainstream,” analysts added. BofA also believes KMB will continue to innovate to grow at or above market in key areas and gain multiple expansions to reach parity with peers.
BofA said its previous downgrade of Kimberly-Clark to Underperform in December 2023 was based on the belief that the company's gross margins had peaked at 35.8% in Q3 2023. However, the company's gross margins have since improved more rapidly than expected, reaching 37.1% in Q1 2024.
Kimberly-Clark now projects to achieve gross margins of "at least" 40% by 2030 through cost reductions, additional savings in selling, general and administrative expenses (SG&A), and improved supply chain efficiency.