Halyard Health Preliminary Analysis

The parent company is Kimberly-Clark Corporation (KMB) has four divisions it operates. Personal Care, Consumer Tissue, K-C Professional and Health Care divisions all involve cleanliness products. Personal Care is the leading division in revenues with brands Huggies and Kotex. Consumer Tissue is known for Kleenex and Scott. K-C Professional is clean products for the workplace and driven also by the Kleenex and Scott brands. The final division is being spun off, Health Care. It is divided into Surgical and Infection Prevention and Medical Devices. It is sold under the Kimberly-Clark name, which is now being changed to Halyard Health.

Revenue Growth 3/31/14 TTM 2013 2012 2011 2010 2009 2008 2007 2006
Personal Care 0% 0% 5% 5% 4% 1% 9% 12% 7%
Consumer Tissue 0% 2% -4% 4% 1% -5% 4% 8% 3%
K-C Professional 0% 1% 0% 6% 3% -5% 4% 8% 5%
Health Care 0% -1% 1% 12% 6% 12% 1% -2% 8%
  Surgical and Infection Prevention -1% -3% 0%
  Medical Devices 3% 4% 6%
Total 0% 0% 1% 6% 3% -2% 6% 9% 5%

 

As you can see in the revenue growth over the last several years that there has been little growth as this is a fully mature industry with little innovation without competition stealing the advantages.  However, you can see that it has been able to maintain operating margins. The company then partakes in share buy backs and dividends with the profits obtained. This becomes less of a stock and more like a bond that’s payment is tied to GDP. The spin-off will be large enough to be accessed by all large investment institutions. The multiples of medical companies is not materially different from personal product multiples. The only growth opportunities that are available are demographic based for the main company. There is growth from baby boomers and their echo both needing diapers for different reasons. This would only impact the US and it’s hard to determine the magnitude of diapers within the Personal Care segment. Additionally, this impact is a few years from maturing. There appears no near term investment opportunity.

Operating Profit 2013 2012 2011 2010 2009 2008 2007 2006 2005
Personal Care 18% 17% 17% 20% 18% 20% 21% 19% 20%
Consumer Tissue 15% 14% 11% 10% 12% 9% 11% 13% 14%
K-C Professional 18% 17% 15% 15% 16% 13% 16% 17% 18%
Health Care 14% 15% 14% 12% 16% 12% 16% 17% 17%
  Surgical and Infection Prevention 13% 13% 13%
  Medical Devices 17% 19% 17%
Total 15% 12% 11% 14% 13% 13% 14% 13% 15%

 

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