Kimberly-Clark (KMB) Earnings Rejuvenate COVID Plays

The company sees 2021 revenue growth between 4% and 6%

Shares in popular 2020 COVID plays saw renewed buying interest Tuesday after toilet paper maker Kimberly-Clark Corporation (KMB) posted a better-than-expected quarterly report.

Key Takeaways

  • Kimberly-Clark topped the Street's top- and bottom-line projections and raised its quarterly dividend by 6.5%.
  • An earnings-driven breakout on above-average volume in Kimberly-Clark shares may act as a catalyst for a shift in momentum back to the upside.
  • The Clorox Company (CLX) share price broke out from a five-month trendline to reclaim the closely watched 200-day simple moving average (SMA).

Kimberly-Clark, a 149-year-old household products company, reported a fourth-quarter profit of $1.69 per share, topping Wall Street's forecast of $1.61 per share. Revenues of $4.84 billion also came in ahead of the consensus mark and grew 5.7% from the year-ago quarter. Moving toward a year into the pandemic, the company's consumer tissue division continued to outperform, climbing 14% to $1.7 billion during the period.

Management also lifted the firm's quarterly dividend by 6.5% to $1.14 per share and authorized a $5 billion share repurchase program. Looking ahead, the company anticipates robust 2021 revenue growth of between 4% and 6%, with earnings per share (EPS) guidance of $7.75 to $8.00. Through Monday's close, Kimberly-Clark stock has a market capitalization of $46.28 billion, yields an enticing 3.24%, and trades relatively flat year to date. Over the past 12 months, the shares have slipped by around 5%.

From a technical standpoint, the share price has trended steadily lower since topping out slightly above $160 last summer. However, yesterday's earnings-driven breakout on above-average volume may act as a catalyst for a shift in momentum back to the upside. Those who buy here should consider booking profits at significant overhead levels at $145 and $154.50, where price finds resistance from previous swing highs. Traders could protect capital by placing a stop-loss order just below the blue short-term downtrend line at $132.

A stop-loss order is an order placed with a broker to buy or sell a security when it reaches a specific price. Stop-loss orders are designed to limit an investor's loss on a position in a security.

Chart depicting the share price of Kimberly-Clark Corporation (KMB)

The Clorox Company (CLX)

Traders who follow the personal care group should also monitor fellow pandemic play The Clorox Company, which moved higher in the wake of Kimberly-Clark's upbeat earnings. The maker of CDC-recommended Clorox Disinfecting Wipes is expected to post its December quarter results on Feb. 4 before the opening bell. Analysts forecast a profit of $1.69 per share, indicating a 16% improvement from a year earlier.

Traders should also watch for an earnings surprise, given the company has surpassed Street expectations in the past six consecutive quarters. As of Jan. 26, 2021, Clorox shares have a market value of $26.72 billion and are trading 33.91% higher over the past year while gaining 5% since the start of the month. Investors also receive a 2.19% dividend yield.

The company's stock price broke out from a five-month trendline Monday to reclaim the closely watched 200-day SMA. Further buying pressure may trigger a short squeeze as sellers rush to cover their positions, given that the stock has a short interest ratio of 11.1%. Traders who enter at these levels should look for a retest of the 2020 high at $239.87 while managing downside risk with a stop order placed somewhere below the 50-day SMA. Think about amending stop orders to the breakeven point if the price climbs above intermediate resistance at $220.

Chart depicting the share price of The Clorox Company (CLX)

The short Interest ratio is a simple formula that divides the number of shares short in a stock by the stock's average daily trading volume. Simply put, the ratio can help an investor find out very quickly if a stock is heavily shorted or not shorted versus its average daily trading volume. 

 Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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