E6.14. Inferring Implied EPS Growth Rates: Kimberly-Clark Corporation (Medium) In March 2005, analysts were forecasting consensus earnings per share for Kimberly Clack (KMB) of $3.81 for fiscal year ending December 31, 2005, and $4.14 for 2006, up from $3.64 for 2004. KMB traded at $64.81 per share at the time. The firm paid a dividend of $1.60 in 2004 and a dividend of $1.80 was indicated for 2005, with dividends growing at 9 pecent a year for the five years thereafter. Use a required return of 8.9 percent for the fol- lowing calculations.

a. Calculate the trailing and forward P/E ratio at which KMB traded in March 2005. Also calculate the normal trailing and forward P/E for KMB

b. Calculate the market's implied growth rate for abnormal earnings growth (AEO) after 2006 What are the earnings-per-share growth rates that the market was forecasting for the years 2007-2010?

d. Analysts were forecasting an EPS growth rate of 8.0 percent per year over these years. What do you conclude from the comparison of these growth rates with those you cal- culated in part

(c) of the exercise?

e. Analyst average buy/hold/sell recommendation, on a scale of 1 to 5 (with 5 being a strong buy), was 2.6. Is this rating supported by their forecasts? Real World Connection The continuing case at the end of each chapter follows Kimberly-Clark. See also Exercises E4.8, E7.8, E10.10, and E11.16 and Minicase 5.3.