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Don’t Seal Your Fate by Holding Sealed Air Stock

David Moadel

Food and product packaging: there’s nothing controversial about that, right? It seems perfectly safe to invest in this industry, and particularly in Sealed Air (NYSE:SEE) stock, which has traded in a rather boring range for three months now.

Don't Seal Your Fate by Holding SEE Stock

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There’s nothing boring, however, about this company lately as a government investigation has shaken some investors in Sealed Air stock out of their positions. Others, though, have held on in hopes of a favorable resolution to the company’s legal snafu.

Should you double down on SEE stock now, or cut and run?

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The Bull Case for SEE Stock

With a trailing 12-month P/E ratio of 17.6 and an annual dividend yield sitting at around 1.5%, SEE stock isn’t flashy or sensational, but the numbers seem to indicate a reasonable valuation and a decent buy-and-hold. Besides, there will always be a need for food packaging, even if a recession hits.

If you don’t know the whole story about this company, then you could actually build a fairly compelling case to go long on Sealed Air stock. If you were to cite the company’s earnings results delivered on Aug. 2, you might even be tempted to rush out and grab shares of SEE stock with both hands.

I won’t dispute that the numbers were good: for the second quarter of 2019, the adjusted EPS of 80 cents marked a year-over-year increase of 25%, and reported revenues of $1.161 billion during the quarter signified an improvement over $1.155 billion generated in the quarter of the previous year.

Moreover, in terms of Sealed Air’s gross profits for Q2, the number came in at $378.3 million, a 4% improvement compared to the same quarter a year ago. Not only that, but the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) amounted to $237 million during the second quarter, representing an improvement over the EBITDA of $218 million that had been reported in the comparable previous-year period.

On top of those impressive numbers, investors also learned that Sealed Air had finalized its acquisition of bag packaging machinery manufacturer Automated Packaging Systems, further cementing Sealed Air’s foothold in the domestic packaging space. Given all of the foregoing, I can see why some traders might feel confident about the SEE stock price — but don’t jump to any conclusions until you’ve read the rest of this article.


SEE vs. SEC

“You can’t fight the government”: it’s an age-old saying with strong implications for cautious investors. It’s one thing to be a contrarian or a nonconformist, but it’s another matter entirely to take up arms with a company that’s actively being investigated by Uncle Sam.

To be more precise, Sealed Air is under investigation by the Securities and Exchange Commission (SEC) concerning the company’s accounting (or lack thereof, as the case may be). In connection with this, Sealed Air has been issued subpoenas, which I will let the company describe in its own words:

The Company has received from the staff of the SEC subpoenas… [seeking] documents and information regarding the Company’s accounting for income taxes, its financial reporting and disclosures, the process by which the Company selected its independent audit firm beginning with fiscal year 2015, the independence of that audit firm, and other matters.

But wait — it gets worse:

The Company has also received a Grand Jury subpoena from the U.S. Attorney’s Office seeking documents relating to the termination of our former CFO and relating to the process by which the Company selected its independent audit firm beginning with fiscal year 2015.

In other words, Sealed Air might have engaged in some shady accounting practices … they definitely fired their chief financial officer, and now they’re potentially knee-deep in legal trouble for the circumstances surrounding the CFO’s firing, along with the accounting issues that probably led to that same firing.

No Seal of Approval for Sealed Air Stock

You’re certainly welcome to buy Sealed Air stock shares if you’re so inclined; for all we know, the company might come out of this mess unscathed and that could potentially send the SEE stock price soaring.

As for me, I’m not prepared to bet on this horse — the U.S. Attorney’s Office isn’t known for clemency, and I’m not known for fighting uphill battles.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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