Back to top

Image: Shutterstock

Reasons to Hold Sealed Air (SEE) in Your Portfolio Now

Read MoreHide Full Article

Sealed Air Corporation (SEE - Free Report) is gaining from the ongoing demand for packaging for food, medical supplies and consumer staples, and e-commerce activities. The company’s focus on investment in capacity expansion to meet the strong demand for automated equipment and sustainable packaging will drive growth as well.

The company currently has a Zacks Rank #3 (Hold) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let's discuss the factors that make the Sealed Air stock worth holding on to.

Sealed Air’s shares have gained 11.2% in the past year against the industry’s decline of 5.1%.

Zacks Investment Research
Image Source: Zacks Investment Research

Better-Than-Expected Q1

Sealed Air’s first-quarter 2022 adjusted earnings per share improved 43.6% year over year to $1.12, driven by favorable price/cost spread and productivity improvements. The bottom line beat the Zacks Consensus Estimate of 92 cents. Total revenues were up 12% year over year to $1.42 million, outpacing the Zacks Consensus Estimate of $1.39 billion.

Upbeat Outlook for 2022

Following the outperformance in Q1, Sealed Air raised net sales guidance in the range of $5.85 billion to $6.05 billion, which suggests an improvement of 6-9% year over year. Organic growth is expected between 9% and 12%. SEE anticipates adjusted EBITDA between $1.22 billion and $1.25 billion, which is expected to rise in the range of 6% to 10% from the last-year figure. Adjusted earnings per share is now forecast in the band of $4.05 to $4.20. The mid-point of the new guidance indicates year-over-year earnings growth of 16%. Volume growth, pricing, and productivity gains from the SEE operating engine are expected to mitigate inflationary costs and supply chain headwinds in 2022. Sealed Air projects free cash flow to be $510-$550 million for the ongoing year.

Solid Growth Projections

The Zacks Consensus Estimate for earnings for 2022 is currently pegged at $4.15, which suggests year-over-year growth of around 17%. The estimate has been revised upward by 1% in the past 30 days.

Cheap Valuation

Sealed Air’s trailing 12-month EV/EBITDA ratio is 12.6, while the industry's average trailing 12-month EV/EBITDA is 26.7. The stock is cheaper at this point based on the ratio.

Return on Assets (ROA)

Sealed Air currently has a ROA of 9.6%, while the industry recorded a ROA of 6.9%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Other Growth Drivers

Strong demand for automated equipment and sustainable packaging solutions continues to drive Sealed Air’s food and protected packaging segments’ growth. In food, the retail channel and protein exports are expected to be solid. Its protein automation pipeline continues to grow across all regions, with major food producers committing to its SEE Touchless Automation future. The company has been witnessing year-over-year higher foodservice demand owing to the reopening of restaurants and other public venues. Backed by this, its fluid solutions portfolio, comprising Cryovac Barrier Bags and pouches for condiments, soups and sauces, has been seeing growth. In the protective segment, continued growth in e-commerce and fulfillment and higher demand in the industrial end markets are likely to drive performance. E-commerce sales, which contribute around 11% to the company’s total sales, have been on the rise amid the stay-at-home scenario.

Given the surging demand for recyclable materials, fiber-based solutions and automated packaging, Sealed Air’s focus on automation, digital and sustainability is likely to boost market-beating growth. SEE recently launched its new Digital Packaging Solutions brand prismiq to create game-changing value for customers powered by its breakthrough digital printing technology. Sealed Air’s pipeline for automated equipment continues to improve, and it has set a target of more than $500 million by 2025. It has been investing in capacity expansion to meet the strong demand for equipment solutions. These investments, along with the company’s acquisitions of Automated Packaging Systems, AFP, Inc and Fagerdala, will stoke growth.

Sealed Air’s Reinvent SEE Strategy, which was implemented in 2018, is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements. It led to around $64 million of benefits in 2021. The capabilities, operational disciplines, and governance processes established through the program are now embedded in the company’s ongoing productivity improvement system — SEE Operating Engine. It is aiding SEE in delivering sales growth and productivity gains, which are helping to mitigate the supply-chain-related challenges. In 2022, the company expects around $20 million of benefits from Reinvent SEE program and around $40 million in benefits from the SEE Operating Engine. This will continue to bolster the bottom-line performance.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Packaging Corporation of America (PKG - Free Report) , Graphic Packaging Holding Company (GPK - Free Report) and Alcoa (AA - Free Report) . While PKG and GPK flaunt a Zacks Rank #1, AA carries a Zacks Rank #2.

Alcoa has a projected earnings growth rate of 107% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 76% in the past 60 days.

Alcoa delivered a trailing four-quarter earnings surprise of 17.4%, on average. Alcoa’s shares have gained 43% in the past year.

Packaging Corporation has an expected earnings growth rate of 16.2% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 4.2% in the past 60 days.

PKG has a trailing four-quarter earnings surprise of 19.6%, on average. Packaging Corporation’s shares have appreciated 5% in the past year.

Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.

Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 11% in a year.