Sealed Air Corporation (SEE - Free Report) is progressing well with its reformation plan — Reinvent SEE Strategy. We believe the company’s results will be supported by enhanced demand for packaging for essential goods and e-commerce amid stay-at-home restrictions owing to the coronavirus pandemic. Acquisitions and innovation will also drive growth.
The stock has long-term expected earnings per share growth rate of 3.9%. At present, Sealed Air carries a Zacks Rank #3 (Hold). It has a VGM Score of B. 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 for investors. You can see the complete list of today's Zacks #1 Rank stocks here.
In the past year, the stock has fallen 28.3%, compared with the industry’s decline of 38.7%.
Let’s delve deeper into the factors that substantiate the company’s Zacks Rank #3.
Strong Q1 Results: Sealed Air reported first-quarter 2020 adjusted earnings per share of 73 cents, surpassing the Zacks Consensus Estimate of 59 cents. The bottom line also improved 24% year over year. The results can be attributed to strong execution of Reinvent SEE strategy, acquisitions, higher volumes and favorable price/cost spread.
Positive Earnings Surprise History: Sealed Air outpaced the Zacks Consensus Estimate in each of the trailing four quarters. It has a trailing four-quarter positive earnings surprise of 13.9%, on average.
Return on Assets: Sealed Air currently has a Return on Assets (ROA) of nearly 8%, while the industry recorded ROA of 5%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Reinvent SEE Strategy to Drive Earnings: In December 2018, Sealed Air announced a reformation plan, Reinvent SEE Strategy, and a fresh restructuring program, in a bid to drive growth and earnings. The strategy is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements. One of most vital aspects of this strategy involves investment in technology and resources focusing on new and existing high-growth markets.
The company is on track to realize 110 million of incremental benefits to adjusted EBITDA in 2020 compared with last year. Over the 2019-2021 timeframe, the company has targeted approximately $330 million of Reinvent SEE benefits. This will continue to boost bottom-line performance.
Other Growth Drivers: Around 65% of Sealed Air’s revenues come from packaging of protein, foods, fluids and goods for the medical and life sciences industries. The food care business continues to benefit from the shift in demand for case ready, shrink bags and pre-packaged meals and snacks designed for home consumption amid the pandemic-induced restrictions.
In the medical and life sciences portfolio, demand for protected packaging solutions for medical supplies, pharmaceuticals, and personal protective equipment, such as monitoring systems, ventilators, mask and COVID-19 test kits remains high. Further, e-commerce sales, which contribute around 13% to the company’s sales, have been on the rise amid the stay-at-home scenario. Thus, with more than 75% of the company’s revenues originating from end-markets that are deemed essential and supporting the stay-at-home environment amid the pandemic, it is well poised to sustain the top-line performance.
Sealed Air’s acquisition of Automated Packaging Systems, expands breadth of the company’s automated solutions and sustainable packaging offerings. Earlier, the company acquired AFP, Inc., which expanded its protective packaging solutions in the electronics, transportation and industrial markets with custom-engineered applications. The company had also acquired Fagerdala, to leverage its manufacturing footprint in Asia, expertise in foam manufacturing and fabrication, and grow sales in the consumer electronics, medical equipment and devices, automotive, temperature assurance, and e-commerce fulfillment sectors.
The acquisitions and investments that the company has been making to its core business will drive growth. Sealed Air’s top-line will be supported by enhanced demand for its core product portfolio, recently-introduced innovations, strong fresh food markets and e-commerce sector.
However, there are a few factors that are likely to hinder growth in the near term.
Around 35% of the company’s sales serve consumer and industrial segments. Many of these end markets including general manufacturing, transportation, and non-essential goods. These are facing slowdown or shut downs following government restrictions, and significant reduction in discretionary spending.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. (SLGN - Free Report) , Axon Enterprise, Inc (AAXN - Free Report) and Broadwind Energy, Inc. (BWEN - Free Report) . While Silgan Holdings carries a Zacks Rank #1, Axon Enterprise and Broadwind Energy carry a Zacks Rank #2.
Silgan Holdings has an expected earnings growth rate of 11.3% for the current year. The stock has appreciated 9% in a year’s time.
Axon Enterprisehas a projected earnings growth rate of 14.2% for 2020. The company’s shares have rallied 14% over the past year.
Broadwind Energy has an estimated earnings growth rate of 174% for the ongoing year. The company’s shares have gained 22% in the past year.
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