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MeadWestvaco Hits New 52-Week High on Growth Prospects in Brazil

Zacks Equity Research

Shares of MeadWestvaco Corporation (MWV) reached a new 52-week high of $44.72 on Jul 1, before closing a notch lower at $44.52. MeadWestvaco has delivered a solid one-year return of about 38.18% and a year-to-date return of 25.83%, outperforming the S&P 500. Average volume of shares traded over the last three months is approximately 1454K.

Over the past 52 weeks, MeadWestvaco’s share price has ranged from a 52-week low of $33.08 on Nov 7, 2013, to a 52-week high of $44.72 on Jul 1, 2014. Richmond, VA-based MeadWestvaco is a global packaging company catering to healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and agricultural industries with a market cap of $7.47 billion. MeadWestvaco has long-term estimated earnings per share growth rate of 8%.

Growth Drivers

MeadWestvaco shares got a lift following its announcement of divestiture of the beauty and personal care folding carton business in Europe to ASG (AGI-Shorewood Group) on Jun 3. The company also announced the completion of its pre-disclosed plan to repurpose a folding carton facility in Brazil. The facility will produce fragrance pumps and dispensers to cater to the fast-growing Brazilian market. This year Brazil is projected to outrun China as the number two beauty market in the world at $48 billion. Both of these moves will improve margins in the Home, Health & Beauty segment.

MeadWestvaco’s upbeat first-quarter results reported on Apr 30 also acted as a catalyst for its shares previously. MeadWestvaco reported first-quarter 2014 adjusted earnings from continuing operations of 23 cents per share, which marked an over twofold increase from the year-ago quarter’s earnings per share of 9 cents.

Though MeadWestvaco did not provide any specific guidance for fiscal 2014, it expects earnings to be higher than fiscal 2013 on the back of consistent volume improvement in paperboard packaging and high value dispensing. Furthermore, improved productivity and continued positive operating leverage from increased plant utilization rates will boost earnings.

MeadWestvaco shares got a further push from the news on Jun 2 that investment management firm, Starboard Value LP, has acquired an approximately 5.6% stake in the company. Starboard will be the company’s fifth-largest shareholder.

Starboard is pushing for changes at MeadWestvaco on the premise that the combined value of MeadWestvaco’s assets far exceeds the company’s current share price, and this value is being obscured by MeadWestvaco’s excessive corporate overhead and conglomerate structure. Starboard’s suggestions include: continuing with cost-cutting efforts, exploring the sale or spinoff of its non-core businesses such as the specialty chemicals business and looking for options to get more value out of its real estate assets. MeadWestvaco has also been advised to repurchase about $500 million of its stock in order to boost shareholder value.

Starboard had previously recommended changes at Office Depot, Inc., Compuware Corp. and Darden Restaurants, Inc. Improving MeadWestvaco's cost structure and capital allocation per Starboard’s suggestions will propel its share price.

MeadWestvaco, in response, put forward the number of actions taken that have significantly enhanced shareholder value. The company has divested more than $6 billion of non-core assets, including well-timed and creative transactions involving the company’s Printing and Writing Papers and Consumer & Office Products businesses, and the most recent U.S. forestlands.

MeadWestvaco has returned more than $4 billion directly to shareholders through a combination of regular and special dividends, share repurchases and spin-off distributions. The company has also reduced costs and improved margins in its packaging and specialty chemicals businesses, including completed and ongoing programs that are expected to achieve more than $200 million of permanent annual savings by the end of 2015.

Other Stocks to Consider

MeadWestvaco currently holds a Zacks Rank #2 (Buy). Some other stocks worth considering in the sector include Sealed Air Corporation (SEE), Graphic Packaging Holding Co. (GPK) and Sonoco Products Co. (SON). While Sealed Air sports a Zacks Rank #1 (Strong Buy), Graphic Packaging and Sonoco Products carry the same rank as MeadWestvaco.

Read the Full Research Report on MWV
Read the Full Research Report on SON
Read the Full Research Report on SEE
Read the Full Research Report on GPK

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