On Nov 15, we downgraded our recommendation on packaging solutions provider MeadWestvaco Corporation (MWV) to Underperform. Our view reflects the company’s increased exposure to real estate market, higher raw material costs and challenging macroeconomic conditions.
Why the Downgrade?
MeadWestvaco, on Oct 29, reported third-quarter 2013 adjusted earnings from continuing operations of 49 cents per share, up 26% year over year. However, it fell short of the Zacks Consensus Estimate of 52 cents.
Weak performance of two important segments – Food & Beverage and Home, Health & Beauty affected the results. Revenues and profit decreased year over year in both segments. Food and beverage packaging continues to be impacted by the challenging global economic climate, particularly in Europe.
In October, MeadWestvaco announced its intention to sell U.S. forestland and create a new partnership for real estate development in the Charleston, S.C., region. This is an important step towards strategic transformation. However, exposure to the real estate market will increase volatility in this highly competitive and cyclical market.
In addition, higher raw material costs – mainly resin, transitory costs related to the exit of the Folding Carton business, challenging macroeconomic conditions and depreciation of the Real against the U.S. Dollar will act as deterrents.
Following the release of third-quarter results, the Zacks Consensus Estimates for 2013 and 2014 for MeadWestvaco decreased 6.6% and 10.7%, respectively, to $1.27 per share and $1.76 per share, respectively. With earnings estimates for both 2013 and 2014 moving downwards, MeadWestvaco now holds a Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
Other stocks in the same sector with favorable Zacks Rank are KapStone Paper and Packaging (KS) with a Zacks Rank #1 (Strong Buy); and Orchids Paper (TIS) and Stora Enso Oyj (SEOAY) both carrying a Zacks Rank #2 (Buy).
Read the Full Research Report on KS
Read the Full Research Report on TIS
Read the Full Research Report on SEOAY
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