Sunday, May 1, CBS 60 Minutes broadcast a report alleging that MICROCOOL surgical gowns from Halyard Health Inc., a division of Kimberly-Clark Corp. (NYSE:KMBC) until it was spun off in November 2014, were faulty and allowed bacteria and contaminants to seep onto the bodies of health care workers.
Halyard has denied the allegations, saying medical literature confirms there has never been a report of an individual contracting an infectious disease due to seepage from a surgical gown made by Halyard or any other company for that matter.
According to Halyard, even complaints by health care professionals that strikethrough (seepage) occurred have involved less than 1 in 1 million gowns sold.
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Do Facts Matter?
Interestingly, Wall Street seems not to care all that much about statistics and data when it comes to allegations of mischief by corporations. Ahead of the 60 Minutes report, shares of Kimberly-Clark and another company, Lakeland Industries Inc. (NASDAQ:LAKEA) that also makes protective slid. KMB lost about 1%. LAKE slid 4%.
Keep in mind this was before the report even aired and following urging by Kimberly-Clark to a California federal judge that a $500 million class action lawsuit against the company be dismissed.
Stocks And The News
As Investopedia points out, stocks move up and down seemingly irrespective of the news, based on supply and demand. The more people want a certain the stock, the higher the selling price.
Of course, news can drive supply and demand, so the connection is always there. Bad news makes people want to sell their stock. Good news encourages them to buy. In the case of Halyard Health and Kimberly-Clark, the negative 60 Minutes report could drive stock prices down.
Advice From Experts
Does this mean when there is bad news investors should panic or buy on the ensuing dip? And how does that affect Kimberly-Clark?
Jim Cramer’s The Street named Kimberly-Clark 1 of 4 elite dividend-growing stocks all retirees should own. Saying the company has everything an investor could want, The Street pointed to KMB’s plethora of strong brands across many product categories, product innovation, increasing dividend growth and likely future growth as reasons to buy and hold the stock.
Others say the stock is overvalued and that the organic growth touted by some on Wall Street doesn’t matter as much as reported growth. Naysayers also point to analyst predictions for the stock calling for flat revenue for the rest of 2016 through late 2017.
Interestingly, none of this advice appears to factor in the recent news.
The fact that Halyard Health was spun off from Kimberly-Clark does not mean KMB can divorce itself from the 60 Minutes story. After all, the company was mentioned 8 times in the CBS segment and is a co-defendant in that $500 million lawsuit mentioned earlier.
What will matter is consensus on Wall Street about whether Kimberly-Clark will successfully weather the storm. And that, more or less, is the bottom line. The news does matter but what really matters, when it comes to market reaction to the news, is investor perception about how that news will affect the company.