On Jan 11, we have maintained our Neutral recommendation on
global packaging company
) following decent third-quarter 2012 results and impressive
expansion opportunities, partially offset by soft demand and
negative foreign currency fluctuations. MeadWestvaco retains a
short-term Zacks Rank #3 (Hold).
MeadWestvaco reported third-quarter adjusted earnings of 39
cents per share compared with 51 cents in the year-ago quarter,
in line with the Zacks Consensus Estimate. Total revenue
remained flat year over year at $1.40 billion, but beat our
projection of $1.37 billion.
We appreciate MeadWestvaco's intent of becoming more of a
packaging company moving forward. Following the sale of its
Envelope business and the spin-off of the Consumer & Office
Products segment, the company now generates 85% of its revenues
MeadWestvaco is well positioned to capture growth from new
products and solutions. Management has reaffirmed its targets of
$1 billion in sales growth and 7-10% annual earnings growth over
the next 3-5 years.
The company continues to expand its presence in emerging
markets. MeadWestvaco recently acquired the remaining shares of
Resitec Industria Quimica, Ltda in Brazil and Ruby Macons Limited
in India. It has stepped up its capital improvement plans and
updating its facilities more aggressively. Cost savings and
volume expansion from these initiatives will significantly aid
margin expansion in both the segments in the next two years.
We expect MeadWestvaco's free cash flow to improve
significantly, reflecting higher earnings and reduced capital
expenditure following the completion of the above-mentioned
investments. We expect the company to raise its dividend by
mid-2013 backed by a strong balance sheet and over funded pension
and also utilize its cash flow for acquisitions and share
Earnings in the Industrial segment in the fourth quarter are
expected to be affected by continued soft demand and order
trends, unfavorable foreign exchange translations and start-up
expenses related to the commissioning of the new machine in
Brazil. Furthermore, exposure to Europe, soft global demand
Other stocks to consider
In contrast to MeadWestvaco, better stocks to consider in the
same industry are
Graphic Packaging Holding Company
) which holds a Zacks Rank #1 (Strong Buy),
AEP Industries Inc.
Packaging Corp. of America
) which hold Zacks Rank #2 (Buy).
AEP INDS (AEPI): Free Stock Analysis Report
GRAPHIC PKG HLD (GPK): Free Stock Analysis
MEADWESTVACO CP (MWV): Free Stock Analysis
PACKAGING CORP (PKG): Free Stock Analysis
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