Shares of Sealed Air Corporation
(SEE - Free Report
) have lost 25.9% year-to-date compared with the industry
’s decline of 10.1%. The decline can be attributed to multiple headwinds plaguing the company.
What’s Pulling the Stock Down?
Increasing raw material prices and higher freight charges will continue to weigh on the company’s bottom-line for quite some time. Further, currency headwinds are anticipated to hurt earnings in 2018. In fact, the company estimates a negative impact of $40 million from unfavorable foreign currency on net sales and $10 million on adjusted EBITDA. Notably, the company’s prior forecast assumed an impact of approximately $20 million and $5 million on net sales and adjusted EBITDA, respectively, due to currency. Unfavorable currency is likely to affect the Food Care results owing to its exposure to Europe, Latin America and Australia.
In the Product Care segment, global volumes declined 2% in third-quarter 2018 while utility business fell 7%. This business accounts for 30% of the segment’s sales. Competition across the utility portfolio intensified in North America and the U.K. and the company also witnessed a slowdown in China owing to tariff uncertainties. It also experienced higher absorption costs in the second quarter of 2018 on account of lower global volumes. This will continue to impact results in the fourth quarter of 2018. Moreover, Sealed Air continues to invest in R&D, sales and marketing. Even though these investments will drive future growth, it will affect margins in the near term.
For 2018, the company projects net sales of approximately $4.7 for 2018 down from the previous projection of $4.75 billion. Adjusted EBITDA from continuing operations is anticipated at $870 million-$880 million, down from the prior guidance of $890-$910 million. Adjusted earnings per share are anticipated to be $2.40-$2.55, lower than the previous expectation of $2.45-$2.55. The mid-point of the guidance reflects year-over-year growth of 35%, lower than the previously guided 38%.
Bearish Readings & Zacks Rank
The negativity around the stock can be gauged from the Zacks Consensus Estimate being revised 7% downward in the past 60 days for current-quarter earnings. The Zacks Consensus Estimate for earnings for fiscal 2018 has moved south 3% over the past 60 days while the same for fiscal 2019 has gone down 6%.
Sealed Air’s Zacks Rank #4 (Sell) only reaffirms that it is plagued with several headwinds at the moment. The unfavorable rank implies that investors should get rid of the stock from their respective portfolios. In fact, stocks with a Zacks Rank #4 or 5 (Strong Sell) are likely to underperform the broader market over the next one to three months.
Additionally, the stock’s valuation is not attractive. The company’s forward 12-month EV/EBITDA ratio of 10.1 compares unfavorably with the industry’s 10.0.
Will the Stock Rebound?
Enhanced demand for the company’s core product portfolio, recently-introduced innovations, strong fresh food markets and e-commerce sector are primary factors which are likely to drive Sealed Air’s top-line. The company is witnessing increased demand for essential and high-performing packaging solutions that extend shelf life, reduce waste and drive customer productivity.
Further, ongoing momentum in high-growth geographies such as Brazil, Russia, China and Southeast Asia will continue as demand increases for packaged proteins and convenience meals. The company is also focusing on reducing cost structure. Sealed Air’s accelerated actions under its existing restructuring program.
We believe these factors will benefit Sealed Air’s results going forward, and lift its share price. However, for the time being the stock will remain under pressure due to the abovementioned headwinds.
Stocks to Consider
DXP Enterprises’ earnings estimates have been revised upward by 13% and 9% for 2018 and 2019, respectively, over the past 60 days. Its shares have gained 23% year to date.
Luxfer Holdings’ earnings estimates have moved north by 15% and 13% for 2018 and 2019, respectively, over the past 60 days. The company’s shares have surged 46% year to date.
Flowserve’s earnings estimates have gone up 2% and 3% for 2018 and 2019, respectively, over the past 60 days. The stock has gained 15% year to date.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.