Packaging Stocks

Sealed Air Corporation Annual Valuation – 2015 $SEE

SA_Brandmark_CMYK_reducedBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – May 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Sealed Air Corporation (SEE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Sealed Air Corporation is engaged in food safety and security, facility hygiene and product protection business. The Company serves a range of end markets, including food and beverage processing, food service, retail, health care and industrial, commercial and consumer applications. The Company’s brands include Cryovac packaging technology, Diversey and TASKI brand cleaning and hygiene solutions, Bubble Wrap brand cushioning, Jiffy protective mailers and Instapak foam-in-place systems. The Company operates in four segments: food care, diversey care and product care and other category, which includes its medical applications and new venture businesses. The Company conducts its business through three wholly owned subsidiaries, Cryovac, Inc., Sealed Air Corporation (US) and Diversey, Inc. (Diversey). The Company operates through its subsidiaries in the United States and the 62 other countries.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $48.95
MG Value $0.00
MG Opinion Overvalued
Value Based on 3% Growth $3.02
Value Based on 0% Growth $1.77
Market Implied Growth Rate 113.42%
Net Current Asset Value (NCAV) -$19.02
PEmg 235.34
Current Ratio 1.68
PB Ratio 9.01

Balance Sheet – March 2015

Current Assets $2,677,000,000
Current Liabilities $1,594,000,000
Total Debt $4,262,000,000
Total Assets $7,854,000,000
Intangible Assets $3,792,000,000
Total Liabilities $6,704,000,000
Outstanding Shares 211,700,000

Earnings Per Share

2015 (estimate) $2.08
2014 $1.20
2013 $0.58
2012 -$7.31
2011 $0.80
2010 $1.44
2009 $1.35
2008 $0.99
2007 $1.89
2006 $1.47
2005 $1.35

Earnings Per Share – ModernGraham

2015 (estimate) $0.21
2014 -$0.70
2013 -$1.31
2012 -$1.69
2011 $1.18
2010 $1.39

Dividend History

Conclusion:

Sealed Air Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the net current assets and the lack of earnings growth or stability over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.18 in 2011 to only an estimated $0.21 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 113.42% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value well below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Sealed Air Corporation (SEE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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