KMB - Essity Institutional Coverage Is Outdated With Severe Increases In Input Costs Not Reflected In The Current Price

• We think that the Essity run-up is in total contrast to fundamental commodity trends that will compress Essity's margin.
• Essity is remarkably exposed to this negative commodity trend due to lacking vertical integration, after spinning off its forests, and due to end-market exposures.
• Pulp prices, the main input, have rallied significantly due to durable supply-side forces that will not go away quickly, and will be further buoyed by the demand-side upon reopening.
• Topline price offsets, which are tentative to begin with, will not be enough to counteract higher input costs as the intensity of pulp inputs for consumer tissue is very high.
• We use a simulation to show that on average, the downside is quite substantial, and with earnings season right around the corner there is a catalyst to viably go short.

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