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Sealed Air (SEE) Stock Down 18% YTD: Will it Bounce Back?

Zacks Equity Research
·4-min read

Sealed Air Corporation’s SEE focus on innovation, acquisitions, and restructuring actions are commendable. However, shares of the company have lost 17.6% year to date compared with the industry’s decline of 9.7%. This downside can primarily be attributed to the impact of the COVID-19 pandemic on some of its end markets.

What’s Weighing on the Stock?

Parts of the food industry including food service and restaurants have been impacted significantly by the pandemic. The company’s fluids portfolio, which comprises innovative vertical pouch packaging for condiments, soups and sauces, has been negatively impacted by the slowdown in the food service industry. Further, many of its end markets including general manufacturing, transportation are facing slowdown or shutdowns following government restrictions and significant reduction in discretionary spending.

Decelerating global industrial market amid the U.S.-China trade war has been impacting Product Care segment’s volumes for quite some time. The pandemic has added to woes. The company’s traditional packaging solutions, which include Bubble Wrap, standardized mailers, shrink film and void fill, generate around one-third of the Product Care segment’s sales. This part of the segment is bearing the brunt of the market’s shift to automation and the global industrial manufacturing slowdown. Moreover, specialty industrial applications, which include the Instapak platform and integrated fabrication solutions, account for another one-third of Product Care sales, also remains weak thanks to lower global industrial demand.

 

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Factors Likely to Drive Growth

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 will gain 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 will help sustain the top-line performance.

In December 2018, Sealed Air announced a reformation plan — Reinvent SEE Strategy — along with a fresh restructuring program, in a move to drive growth. The new strategy is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements. The company is on track to realize 110 million of incremental benefits to adjusted EBITDA in 2020 compared with the prior year. This will help sustain margins despite weakness in certain end markets.

Further, innovation, acquisitions and investments that the company has been making to its core business will drive growth. Few notable buyouts made by the company include Automated Packaging Systems, Inc., AFP, Inc and Fagerdala.

Zacks Rank & Stocks to Consider

Sealed Air currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are The ExOne Company XONE, Silgan Holdings Inc. SLGN and Broadwind Energy, Inc. BWEN. While ExOne and Silgan sport a Zacks Rank #1 (Strong Buy), Broadwind Energy carries a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

ExOne has an estimated earnings growth rate of 15% for the ongoing year. The company’s shares have rallied 19% year to date.

Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 7% so far this year.

Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has gone up 35% year to date.

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