Sealed Air Corporation SEE is poised well to gain on enhanced demand for packaging for essential goods and e-commerce amid the coronavirus pandemic. The company is also making steady progress on its reformation plan — Reinvent SEE Strategy. We believe the company’s results will also be supported by acquisitions and product innovation.
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 three months, the stock has gained 18.8%, compared with the industry’s growth of 16.5%.
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, the average positive surprise being 13.9%.
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 drive the bottom line.
Poised Well Amid the Pandemic
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.
Other Growth Drivers
Sealed Air’s recent acquisitions including Automated Packaging Systems, AFP, Inc. and Fagerdala will drive growth. The company’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 Lakeland Industries, Inc. LAKE, Energous Corporation WATT and Chart Industries, Inc. GTLS. While Lakeland Industries sports a Zacks Rank #1, Energous Corporation and Chart Industries carry a Zacks Rank of 2, at present.
Lakeland Industries has a projected earnings growth rate of 418% for fiscal 2020. The company’s shares have appreciated 56% in the past three months.
Energous Corporation has an expected earnings growth rate of 44% for 2020. The stock has gained 263% over the past three months.
Chart Industries has an estimated earnings growth rate of 2% for the ongoing year. The company’s shares have rallied 91% in the past three months.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
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