Inside Wall Street: Sealed Air looks tasty
Millions of consumers use the innovative food packager's products, but individual investors have yet to discover the stock.
When you reach into the fridge for that food in a sealed plastic container, you expect that it's fresh and safe from germs or contamination. That may be thanks to Sealed Air (SEE), which makes a wide array of protective packaging materials and products.
In spite of being a worldwide maker of everyday household items, Sealed Air is far from a household name. Institutional investors are aware of the company, however, and own 75% of the shares outstanding. That's probably because Sealed Air is also a major producer of industrial packaging materials, such as the Bubble Wrap and Cryovac automated packaging systems used by food-service companies.
While individual investors are also huge users of Sealed Air products, such as end-seal bags for fresh foods, they have yet to discover the stock -- they own just about 20% of total shares outstanding.
That may be why Sealed Air has yet to join the current market rally. The stock is down from its 52-week high of $28.13 reached on Feb. 7, 2011, and is currently trading below $20. Still, of the six major Wall Street analysts who track the company, four recommend buying the stock, and two rate it a "hold," or "neutral." None recommend a "sell."
Sealed Air could get a big boost when individual investors start paying attention to the stock and see that it's undervalued. Large institutional investors in turn pay more attention when a stock is being chased by individuals. Portfolio managers usually sell some shares into strength, but they end up buying more when they recognize that a rally has legs.
One institutional investor who is bullish on Sealed Air is Kent Croft, president and chief investment officer of Croft Funds, a value investor who says the company is now generating strong cash flow and earnings, in part because of the widening hygienic trend in food consumption worldwide.
Croft says the stock is definitely undervalued, with great prospects for significant growth in the years ahead. This is the time to buy the stock, he says, as it has yet to join the ongoing rally.
Ghansham Panjabi, an analyst at investment firm Robert W. Baird, upgraded his recommendation on the stock earlier this month to "outperform" from "neutral," based on its "attractive risk-reward profile." He figures the downside is likely limited to the $19 level and the upside is the high $20s. Panjabi sees the company earning $1.50 a share in 2012 and $1.85 in 2013.
Rosemarie Morbelli, analyst at investment firm Gabelli & Co., puts Sealed Air's intrinsic private-market worth at $29 a share, noting that management has a "successful history of deleveraging" and is "conservative and down-to-earth."
Morbelli, who recommends buying the stock, has increased her earnings estimates to reflect management's guidance following the improved fourth-quarter results. She forecasts 2012 earnings of $1.53 on revenues of $8.27 billion, and for 2012 profits of $1.85 on sales of $8.63 billion. Sealed Air earned $1.70 a share in 2011 on revenues of just $4.84 billion.
Analyst Stewart Scharf of S&P Capital IQ, who rates the stock a buy, says that global markets will gradually recover, which would be a boost to Sealed Air, which he adds "will continue to develop innovative products." He also sees the stock as undervalued, and expects the recent acquisition of Diversey, a food safety and hygiene solutions provider, will expand the company's reach into the developing markets.
Foreign markets accounted for 56% of Sealed Air's sales last year, led by Europe, the Middle East and Africa, which totaled 35%. Asia-Pacific markets accounted for 17% of sales, and Latin America made up 9.7%.
Gene Marcial wrote the Inside Wall Street column for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book Seven Commandments of Stock Investing, published by FT Press.
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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