If there is a business that will hardly know a profound crisis it is the food and beverage industry, even during a period of slowdowns. And with it, all those related activities that provide the industry with services and products should also be safe. One of these related industries that have proven to be quite resilient during economic hard times are packaging and containers.
Their activities are fundamental for the care of goods that reach consumers, retailers, and food and service operators.
A company that operates in the packaging and containers industry and that was grabbed by my screening radar is Sealed Air Corp. (SEE, Financial). The company is positioned to benefit from the following predictions.
Analysts foresee a substantial advancement of the packaging and containers industry in terms of earnings growth. Predictions are in the 13-15% range for the 2018 to 2019 period and in the 21-25% range for each subsequent year of the 2019 to 2024 span.
And if the shareholders want to increase the possibilities of success, they know that the stock can today be purchased at a compelling valuation, which is at an earnings yield of nearly 9%. That is more than double the average monthly spot rate on high quality market corporate bonds or HQMC bonds. HQMC bonds are those securities representing the corporate loans of companies that are rated triple-A, double-A or single-A rated. That is the best the corporate bond market can offer.
The company is distributing dividends of 16 cents quarterly. If held constant this will lead to a forward annual dividend of 64 cents, granting a 1.56% dividend yield. The dividend yield is below the S&P 500 current dividend yield of 1.8%, but it is not bad. The company has regularly paid dividends since 2006, even though the distribution has been a bit erratic in its amount.
When consulting GuruFocus for some technical indicators on the stock, we can see that Sealed Air Corp. is trading cheaply, because the current share price of $39.90 is under the 200, 100 and 50-SMA lines. That is the result of a 12% fall for the 52-weeks through Aug. 14.
The stock is not far from hitting the 52-week low of $39.02 per share and is 20% below the 52-week high of $49.94 per share. The Relative Strength Indicator or RSI-14 days of 32 indicates the stock has almost reached oversold levels.
The price-sales ratio is 1.49 versus an industry median of 0.86. Value investors usually consider a threshold of 1.5 for the price-sales ratio. The price-earnings ratio is 11.19 versus an industry median of 18.27. Usually, the threshold for the price-earnings ratio stands at 15 times. A price-earnings ratio below 15 increases the chances for value.
Sealed Air Corp. was founded in 1960 and is headquartered in Charlotte, North Carolina. The company is a worldwide leading provider of solutions for food safety and security and for the protection of products. Sealed Air Corp. conducts its business through two main segments: food care and the product protection.
Through the first segment, the company provides its customers with integrated system solutions to lower as much as possible the risk of contamination during the preparation of food and beverages, to improve the merchandise and its use by customers, extend the shelf life of the product and to facilitate its preparation by kitchen staff. The company also provides its customers in the health care industry with ad-hoc material for the packaging of pharmaceutical products, medical devices and specialty components for ostomy and colostomy.
The company operates this segment under the Cryovac brand.
Through the second segment, the company provides its customers with packaging solutions. The brands under which Sealed Air Corp. trades its products are: Bubble Wrap and AirCap, Cryovac, Shanklin FloWrap, Instapak, Jiffy and Korrvu brands. The company also offers I-Pack systems and e-Cube systems.
Markets served by Sealed Air Corp. are the food and beverage processing, food service, retail, health care, industrial, and commercial and consumer applications.
The company closed 2017 with revenue of $4.5 billion, of which 60% stemmed from the food care segment and about 38-40% from the product care segment. Operations generated free cash flow of about $421 million and adjusted Ebitda of $833 million for an adjusted Ebitda margin of nearly 19%.
In the second quarter of 2018, which ended June 30, the company invoiced customers for $1.16 billion and generated an earnings per share of 64 cents, beating consensus by 6 cents.
Sealed Air Corp. progressively grew revenues until 2015. Afterwards, the company experienced a dramatic decline in revenue. Therefore, the average is negative, -13.3%, over the last five years.
Despite the fall in the company’s annual turnover, the net income margin increased and stood at 14.4% Wednesday, above an industry median of 3.9%.
A highly skilled and competent staff in the sales and finance departments who can maximize profit through sales volume growth and favorable combinations of price mix decisions may be the next catalyst for this company.
The acquisition of Fagerdala Singapore Pte Ltd. is also proving to be beneficial to Sealed Air Corp. in terms of increased sales. Fagerdala Singapore, a producer of polyethylene, was acquired at the beginning of the fourth quarter of 2017.Â
GuruFocus assigns Sealed Air Corp. a financial strength rating of 4 out of 10.
Wall Street has set an average target price of $49.75 per share.
The company is reporting 158.81 shares outstanding, of which 88.7% is held by institutions and 3.4% is held by insiders. The stock has a market capitalization of $6.33 billion.
The Vanguard Group Inc. is the top insitutional shareholder of Sealed Air Corp. with an 11.3% stake into the common stock of the packaging company.
Disclosure: I have no positions in any security mentioned in this article.
