Sealed Air Corporation (SEE) Annual Valuation – 2014

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 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  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 bubbles Wrap brand cushioning, Cryovac brand food packaging solutions and Diversey brand cleaning and hygiene solutions. The Company operates in four segments: food and beverage, institutional and laundry and protective packaging, and other category, which includes its medical applications and new venture businesses. On November 14, 2012, the Company completed the sale Diversey G.K. (Diversey Japan).

SEE Chart

SEE data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  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 – FAIL
  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 = 1/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  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:

Balance Sheet – 12/31/2013

Current Assets $3,417,700,000
Current Liabilities $2,700,800,000
Total Debt $4,116,400,000
Total Assets $9,134,200,000
Intangible Assets $4,131,500,000
Total Liabilities $7,745,100,000
Outstanding Shares 196,200,000

Earnings Per Share

2013 $0.44
2012 -$8.35
2011 $0.80
2010 $1.45
2009 $1.34
2008 $0.95
2007 $1.89
2006 $1.47
2005 $1.35
2004 $1.13

Earnings Per Share – ModernGraham

2013 -$1.64
2012 -$2.04
2011 $1.17
2010 $1.38
2009 $1.36
2008 $1.37

Dividend History

SEE Dividend Chart

SEE Dividend data by YCharts

Conclusion:

Sealed Air Corporation is not suitable for either the Defensive Investor or the Enterprising Investor.  The company’s significant loss in 2012 causes great concern to both investor types, and in fact the company’s only redeeming quality for the Defensive Investor is its size.  For the Enterprising Investor, the only requirement the company passes is the dividend payment.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities such as Bemis Company (BMS) and through a review of 5 Low PEmg Companies for the Defensive Investor.  From a valuation side of things, the company appears to be significantly overvalued due to the significant loss in 2012, as that has led the company’s EPSmg (normalized earnings) figure to drop from $1.36 in 2009 to -$1.64 for 2013.  This demonstrated drop in earnings does not support the market’s implied estimate of earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the market 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.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a long position in Sealed Air Corporation (SEE) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.


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