Ticker Reports for June 22nd
Kimberly-Clark Analysts' Forecasts Push Stock to New Highs
Kimberly-Clark (NYSE: KMB) proved worthy of the Dividend King title in the last two years. The company struggled with volume declines and sluggish performance that caused analysts to cut sentiment, curb price targets, and cap the market for its stock. Fast forward to today, and the story has changed. Analysts are warming to the name and leading the stock to a new high. With this scenario in play, the upcoming earnings report will catalyze the market, potentially leading to a significant upside for this king of capital return.
The latest analysts' updates include a double-upgrade to Buy from Bank of America. Bank of America cut the stock to Underperform late last year on an expectation that the margin had peaked and business would contract more than it did. Two quarters later, the analysts at Bank of America are changing their tune because growth is back in the picture. The Q1 results have revenue down slightly compared to the previous year due to price and mix; the volume returned to growth and is expected to provide leverage and a wider margin as the year progresses.
Bank of America’s price target aligns with the high end of the expected range and suggests a double-digit upside and a new all-time high. Coincidentally, Royal Bank of Canada reiterated its Outperform rating and $165 target two days later.
Analysts Raise Estimates for Margin Widening Kimberly Clark
The forecast for Q2 and the year is mixed but includes margin expansion and a pivot to top-line growth in the back half. Analysts expect a 0.5% revenue decline in Q2 but expect adjusted earnings to grow. The gross margin expanded nearly 400 basis points in Q1 as organic growth and productivity improvement offset rising costs, and the strength is expected to continue through year-end. Earnings are forecast to rise by a nickel or 3% and to outpace revenue growth. Longer-term growth is expected to accelerate in fiscal 2025 as organic growth persists and the impact of divestitures drops out of the equation.
The stock price valuation is not a concern and is unlikely to alter the stock price trajectory, given the outlook for revenue and earnings. Trading at 19x earnings, valuation is in the middle of the range for consumer staples companies and provides some value relative to the S&P 500.
Kimberly-Clark has some risks related to the balance sheet, but they are receding and playing into the shift in analysts' sentiment. The company carries some debt and is moderately leveraged with long-term debt at 7.1x equity. The offsetting factor is that debt is falling, and the leverage ratio is down from over 8x at the end of last year. Cash flow is sufficient to sustain debt reduction and is expected to improve, so the leverage situation should continue to improve.
The cash flow and balance sheet allow for share buybacks. Repurchases are small but robust enough to offset dilution and reduce the count slightly in Q1, aiding the dividend growth outlook. It is unlikely that Kimberly-Clark will make robust distribution increases, but sustained increases in the low-single-digit range are likely, and the 3.45% yield is attractive enough.
Kimberly-Clark Analysts Resume Uptrend in Stock Price
Kimberly-Clark's price action has been range-bound since 2022 but never broke the stock’s uptrend. The market consolidation included a significant 25% correction, resulting in a trend-following signal still in play. The market is moving upward from a higher support level in 2024, with plenty of room to run.
The MACD and stochastic support the bullish outlook and upside potential, bringing the question of targets to mind. In this scenario, the first significant target is the $147.50 level, coincident with the 2022 high, and the next is at an all-time high. Because the analysts are leading to an all-time high and higher, a move above $160 may only be a matter of time.
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Aurora Cannabis Earnings Reveal a Turning Tide for the Stock
Aurora Cannabis (NASDAQ: ACB) released its fourth-quarter 2024 earnings report today, revealing a company at a potential turning point. For the first time in its history, Aurora Cannabis’s financials reported a positive annualized adjusted EBITDA, signaling a move towards sustained profitability. This news has been met with cautious optimism by Aurora Cannabis’s analyst community, who have witnessed the company navigate a turbulent period in the cannabis sector.
Aurora Cannabis Reports Sixth Consecutive Quarter of Positive EBITDA
Aurora Cannabis's earnings report for the fourth quarter of 2024 revealed a record $12.8 million adjusted EBITDA, with the fourth quarter reporting at $1.9 million, representing the sixth consecutive quarter of positive EBITDA. This marks a significant improvement from the prior year and underscores the company's efforts to control costs and improve operational efficiency.
Analyzing the company’s financials shows that total revenue for the fiscal year 2024 increased by 21% year-over-year. This growth was fueled by a particularly strong performance in Aurora's global medical cannabis segment, which saw a 20% year-over-year increase in Q4 2024. This segment's success is partly attributed to the strategic acquisition of MedReleaf Australia, demonstrating the company's commitment to expanding its global footprint and capitalizing on the burgeoning medical cannabis market.
Further bolstering investor confidence is Aurora's adjusted gross margin in medical cannabis, reaching 66% in Q4 2024. This figure surpasses the company's targeted range and highlights its ability to maintain pricing power and operational efficiency despite industry-wide pricing pressures.
Adding to this positive financial picture is the company's successful repayment of its convertible senior notes, resulting in a debt-free cannabis business. This strategic move showcases Aurora's commitment to strengthening its balance sheet and positions it for greater financial flexibility.
Factors Fueling Aurora Cannabis's Positive Trajectory
Several key factors have contributed to Aurora's improved financial performance. The strategic integration of MedReleaf Australia has been instrumental in driving revenue growth. Aurora has diversified its revenue streams by tapping into the Australian market and established a strong presence in a rapidly expanding medical cannabis market.
Beyond Australia, Aurora has benefitted from favorable regulatory changes in key markets like Germany, where medical cannabis access is expanding. The company's ability to quickly adapt to evolving regulatory landscapes and seize opportunities in these markets will be crucial for its continued success.
Aurora's strategic decision to prioritize its higher-margin medical cannabis business over the more price-sensitive consumer market has also contributed to its strong margins. This focus on profitability over sheer volume demonstrates a shift towards a more sustainable growth strategy.
Underpinning these successes is the company's unwavering focus on cost optimization. Aurora has implemented a series of measures to streamline its operations, reduce expenses, and enhance efficiency. These initiatives and its strategic market positioning have been critical in driving the company toward profitability.
Projected Revenue Growth: Aurora's Outlook for Q1 2025
Looking ahead to the first quarter of fiscal year 2025, Aurora Cannabis anticipates continued momentum. The company projects a mid-to-high teens percentage growth in consolidated net revenue compared to Q4 2024. This growth is expected to stem from expanding international medical cannabis sales, particularly in Australia and key European markets, and the seasonal strength of its plant propagation business.
Aurora Cannabis also expects to maintain strong adjusted EBITDA margins in Q1 2025, driven by ongoing revenue growth and stable operating costs. Furthermore, the company is focused on achieving positive free cash flow by December 31, 2024, a critical milestone demonstrating its ability to generate sustainable cash flow from operations.
Global Market Potential: Aurora's Position in Medical Cannabis
Despite this optimistic outlook, Aurora Cannabis, like all players in the cannabis industry, faces challenges and opportunities. Ongoing competition in the sector and regulatory uncertainties in various markets could impact future growth. Additionally, maintaining its commitment to cost control and operational efficiency will be crucial as the company scales.
However, the global cannabis market's long-term growth potential remains significant. Aurora is well-positioned to capitalize on this growth, particularly in the burgeoning medical cannabis sector. Its international presence and focus on producing high-quality, scientifically-backed products provide a solid foundation for future expansion.
Moreover, Aurora can leverage its strong brand recognition to drive consumer loyalty and attract new customers. As the cannabis market matures and consumer preferences evolve, its ability to innovate and develop new, differentiated products will be key to maintaining its competitive edge.
Aurora Cannabis's Q4 2024 earnings report provides investors with a much-needed dose of optimism. The company's record adjusted EBITDA, driven by solid revenue growth and a strategic focus on higher-margin segments, suggests it is on the right path. However, it is essential to acknowledge that the cannabis industry remains volatile and subject to various external factors.
Investors should closely monitor Aurora Cannabis's progress toward achieving sustainable profitability and positive free cash flow. The company's ability to navigate the evolving cannabis landscape, capitalize on growth opportunities, and effectively manage its cost structure will be crucial to its long-term success. While the road ahead may present challenges, Aurora Cannabis appears to be turning a corner, offering a glimmer of hope for investors seeking exposure to the cannabis market's long-term growth potential.
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Kroger Stock: Analysts Forecast New Highs, Merger or Not
Kroger’s (NYSE: KR) long-anticipated merger with Albertsons Companies (NYSE: ACI) has been a deadweight on their stock price for years. Try as they might; they just can’t get approval, and the stock prices are wallowing within trading ranges.
The deal, blocked by the FTC, would unlock value for both companies, but it will not be a game-ender for this retail stock if it never closes.
The takeaway for investors is that low-beta Kroger performs well enough, grows, and pays a healthy dividend supported by the balance sheet. The balance sheet is the critical detail. Already strong, Kroger has been improving it for the last two years in preparation for the merger. This means that it is more than capable of acquiring ACI without hurting its outlook. If Kroger doesn’t close the deal, then the company is set up with a fortress balance sheet and robust cash pile to reinvest in store count, market penetration, dividend increases, and share repurchases.
Kroger Pops On Solid Results, Reaffirmed Guidance
Kroger had a decent quarter with revenue of $45.3 billion, growing 0.3% and exceeding expectations for a modest decline. Sales ex-fuel are up a stronger 0.6%, offset by lower realized gas prices. Comp-store sales ex-fuel are up 0.5%, led by digital. Digital sales, a pillar of the company’s growth strategy, improved by 8% across the network, with double-digit gains in delivery and pickup.
The margin news is mixed. Margin contracted, but mitigating factors include business investment and better-than-forecast results. The takeaway is that Kroger continues to generate strong cash flow and free cash flow sufficient to improve the balance sheet while paying dividends. The critical details include $0.06 or 425 basis points of bottom-line outperformance, an 8% increase in cash and equivalents, assets up, debt down, liabilities down, and a 15% increase in equity.
The guidance could be more robust but was at least reaffirmed. The company forecasts revenue and earnings to grow modestly by year’s end and for EPS to bracket the consensus. This is not a catalyst for higher prices but aligns with the forecasts leading the market. Analysts' activity leading into the report includes an upgrade to Outperform by BMO and an increased price target from Telsey. These updates forecast a stock price of $60 to $62, implying a 15% to 20% gain for this market. As it is, the consensus estimate of $56 trends higher in 2024, offers a 7.5% upside, and it is being defended by analysts following the release.
Kroger Has Everything Income Investors Could Want
Kroger has what income investors are looking for, including an outlook for sustained growth over the long term, value relative to the S&P 500, a higher-than-average yield, a low beta, and the ability to repurchase shares. The only factor that needs to be in play today is repurchases, which have been halted to preserve capital, build cash, and strengthen the balance sheet. In this light, assuming the merger with Albertsons fails to close, the company is set up to immediately resume repurchases, issue a dividend increase or special dividend, and go hunting for acquisitions.
The technical action in KR is mixed. The market surged following the release, moved up strongly, and fell back under the weight of sellers, suggesting significant resistance at critical levels. Resistance to higher prices could keep the market range bound until later in the year, and there is a risk of a deeper sell-off.
In this scenario, the stock price could fall to the low end of the range but is unlikely to set a lower low. The $44 level has been firm support for nearly three years and is unlikely to fail now. Assuming the merger process continues to drag on, the likely outcome is that value investors and institutions will support the stock at this level and send it rebounding back to the top of the range. The resolution of the merger process would be a catalyst for higher share prices, either way it goes.
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