Sealed Air Corp (SEE, Financial) experienced a daily loss of 2.39% and a 3-month loss of 14.53% as of September 18, 2023. Despite these losses, the company reported an Earnings Per Share (EPS) (EPS) of 2.68. Given these figures, one may question: is Sealed Air significantly undervalued? We invite you to read on as we delve into an in-depth valuation analysis of Sealed Air.
Introducing Sealed Air Corp
Sealed Air Corp (SEE, Financial) is a major player in the packaging industry, offering food packaging products like Cryovac, Darfresh, and OptiDure primarily for meats. Aside from food care, the company also provides product care solutions, including Bubble Wrap, Instapak, Jiffy mailers, and shrink film packaging systems for industrial and e-commerce applications. With a market cap of $5 billion and sales amounting to $5.50 billion, Sealed Air stands as a significant entity in its sector.
At the current share price of $34.27, the stock appears to be significantly undervalued when compared to its GF Value of $55.56. This discrepancy between the market price and the estimated fair value prompts a more comprehensive exploration of Sealed Air's intrinsic value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. It serves as a benchmark for the fair trading value of the stock.
When the stock price is significantly above the GF Value Line, it indicates overvaluation and potential poor future returns. Conversely, when it is significantly below the GF Value Line, it suggests undervaluation and potentially higher future returns. In the case of Sealed Air, the stock appears to be significantly undervalued, suggesting the long-term return of its stock is likely to be much higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength: A Closer Look
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. To avoid this, it's essential to review a company's financial health before deciding to purchase shares. Two key indicators of financial strength are the cash-to-debt ratio and interest coverage. Sealed Air's cash-to-debt ratio of 0.06 ranks worse than 85.75% of 372 companies in the Packaging & Containers industry, indicating its financial strength is relatively poor.
Profitability and Growth: Key Indicators
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Sealed Air has been profitable over the past 10 years, boasting an operating margin of 15.23%, which ranks better than 91.4% of 372 companies in the Packaging & Containers industry. This strong profitability is a positive indicator for potential investors.
Moreover, growth is a crucial factor in a company's valuation. Sealed Air's 3-year average annual revenue growth of 7.4% ranks better than 52.21% of companies in its industry, suggesting a promising growth trajectory.
ROIC vs. WACC: A Profitability Measure
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can also provide insights into its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. Sealed Air's ROIC of 10.03 is higher than its WACC of 7.92, indicating effective value creation.
Conclusion
In conclusion, Sealed Air appears to be significantly undervalued. Despite its poor financial strength, the company demonstrates strong profitability and promising growth, ranking better than 74.42% of companies in its industry. For more insights into Sealed Air's financials, you can check out its 30-Year Financials here.
For high-quality companies that may deliver above-average returns, consider GuruFocus High Quality Low Capex Screener.
