Why Kimberly-Clark Stock Just Dropped

Kimberly-Clark (NASDAQ: KMB) stock tumbled 12.5% through 10:25 a.m. ET Monday, and it's not hard to figure out why.

This morning, K-C announced it will acquire Tylenol-maker Kenvue (NYSE: KVUE) in a $48.7 billion cash-and-stock deal, resulting in a powerhouse consumer goods company owning "10 iconic billion-dollar brands" -- and boasting $32 billion in annual sales.

Kenvue investors are thrilled with the news, which gives them a chance to exit Kenvue and its Tylenol-causes-autism controversy at a profit. Kenvue stock is up more than 16% today on the news.

Kimberly-Clark investors aren't as enthusiastic, and K-C stock is down dramatically. Should they be worried?

Image source: Getty Images.

The merger details

Well, let's consider the details of this merger announcement.

Kimberly-Clark is promising to pay Kenvue shareholders $3.50 in cash, plus 0.14625 Kimberly-Clark shares, for each Kenvue share they own. K-C puts the total value of this consideration at $21.01 per Kenvue share. Closing of the merger is scheduled for some time in the second half of 2026.

Considering Kenvue stock closed at $14.37 last week, that's a sizable premium K-C is paying -- about 46% -- and good reason for K-C shareholders to worry.

Is Kimberly-Clark stock a buy?

And yet, consider also the positives of this merger. Kimberly-Clark estimates that based on current results, a merged Kimberly Clark-Kenvue will generate $32 billion in annual sales, and approximately $7 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

The two companies earned a combined $3.4 billion in net profit over the last 12 months. K-C thinks it can wring $2.1 billion in cost synergies out of the merger. Assume those saved costs result in $2.1 billion in extra profit, and "K-C-K," as we might call it, could be earnings $5.5 billion a year on $32 billion in sales.

Relative to K-C's market cap of $40 billion (assuming K-C is the surviving company), this implies a P/E ratio as low as 7.3x on the merged company. To me, that sounds cheap enough to buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.