© Reuters. Sealed Air upgrades to Purchase as quantity inflection nearing, shares rise
By Davit Kirakosyan
Sealed Air (NYSE:) shares rose greater than 2% right this moment after UBS upgraded the corporate to Purchase from Impartial with a worth goal of $59.00, noting that volumes ought to inflect with normalizing buyer demand.
Provide chain points akin to these with resin and tools elements, mixed with a post-COVID demand reset and industrial destocking, resulted in destructive quantity traits over the previous yr. Nevertheless, the agency anticipates a optimistic inflection in volumes starting in Q3/23. That is anticipated to spice up confidence within the firm’s development algorithm, and UBS fashions a long-term roughly 13% EPS CAGR, which makes the inventory undeserving of the present valuation low cost.
The agency expects Sealed Air to shift from -6% year-over-year in H1/23 to +3% in H2/23. Within the meals phase, which accounts for roughly 65% of PF gross sales, the corporate underperformed the market in late 2022. Nevertheless, UBS expects the corporate to regain its typical outperformance in H2/23, pushed by improved supplies/elements provides and tools/automation wins. “Protecting (~35% of PF gross sales), has already seen a market correction in e-commerce/transport, electronics, & Industrial demand (incl. destocking),” added the agency.
UBS thinks the market expects EBITDA to lower by round 10% in comparison with 2023 estimates on account of a 12% decline in natural EBITDA year-over-year (excluding Liquibox), and minimal development in 2024.
The corporate achieved a 6% year-over-year enhance in natural EBITDA in 2020 on flattish volumes. Equally, in 2009, EBITDA grew 8% year-over-year regardless of a 3-4% decline in Meals volumes, indicating counter-cyclicality of earnings and offering defensiveness in a downturn. With the inventory now buying and selling at a 10-20% valuation low cost (9% FCF yield), UBS views the shares as engaging.
