Sealed Air Still Packing Great Returns

With the big run up in share prices over the past few months, it’s getting harder to find wildly undervalued stocks. That’s all the more reason to look at buying shares and writing options to achieve the kind of returns you’d like even if the underlying stock doesn’t do all that much.

I wrote up Sealed Air (SEE) back on April 14, 2009 when it was trading at $14.35/share. It’s done well since then, closing at $18.39 last week after reporting June quarter earnings that were less than last year but a bit ahead of analyst estimates (see conference call transcript here). Zacks now looks for $1.36 this year and $1.52 for 2010.

Sealed Air [NYSE:SEE] July 31, 2009 $18.39

52-week range: $10.38 - $25.32

Dividend = $0.12 quarterly = 2.61% current yield

Here are the last few years per share numbers (as reported by Value Line):

A return to even 15x this year’s $1.36 estimate would bring SEE shares back to $20.40 or + 10.9% from here. Add in two $0.12 dividends and the total return prospects look decent in the 5.5 months out to January.

Is a $20.40 target price achievable? The calendar year highs in each year from1997 through 2008 ranged from $23.50 (during 2001’s recession) to $33.90 (in 2007’s heady market). From 2004 right through most of 2008 the absolute lows were $22.00 and up.

Here’s a new way to play Sealed Air from now until January that offers a very nice total return even if SEE shares do nothing at all over that next 5.5 months…

If Sealed Air shares merely remain above $17.50 through Jan. 15, 2010:

• The $17.50 calls will be exercised.
• Your shares will be sold for $17,500.
• The $17.50 puts will expire worthless.
• You will have collected $240 in dividends.
• You will have no further option obligations.
• You will hold no shares and $17,740 in cash.

That’s a best-case scenario net total return of: $3,280 / $14,640 = 22.4% achieved in about 5.5 months on shares that:

• Went up.
• Stayed unchanged.
• Declined by up to $0.89/share or (-4.8%).

What’s the risk?

If Sealed Air shares finish below $17.50 on Jan. 15, 2010:

• The $17.50 calls will expire worthless.
• The $17.50 puts will be exercised.
• You will be forced to buy another 1000 SEE shares.
• You will need to lay out an additional $17,500 in cash.
• You will have collected $240 in dividends.
• You will have no further option obligations.
• You will end up with 2000 SEE and $240 in cash.

What’s the break-even on the whole trade?

On the first 1000 shares it’s their $18.39 purchase price less the $2.25 /share call premium = $16.14 /share.

On the ‘put’ shares it’s the $17.50 strike price less the $1.50 /share put premium = $16.00 /share.

Your break-even would be $16.07 (excluding dividends) and $15.95 /share (including the yield).

Remember, from 2003 right through August of 2008, Sealed Air shares never once traded below $17.50 and hit peak prices of $27.20 to $33.90 in each of those years.

Summary:

Like most stocks, Sealed Air is not as cheap as it was a few months back. It still does look mildly underpriced. Buying and writing as described provides a > 22% total return (about 46% annualized) if the shares go up, stay level, or even go down a bit. Where else can you get that kind of return without taking on much risk?

Disclosure: Author is long SEE shares and short SEE options.

Comments

[Paul Price:]

Zacks now loves SEE…

Sealed Air Keeps OutperformingBy: Zacks Equity Research
October 28, 2009

Sealed Air Corporation (SEE - Analyst Report) posted third-quarter EPS of 38 cents, beating the Zacks Consensus Estimate of 33 cents as well as prior-year EPS of 28 cents. Through its stringent cost-control measures and global manufacturing strategy, the company managed to offset the impact of lower sales on its earnings.

Net sales declined 11.4% to $1.08 billion from $1.22 billion in the third quarter of 2008. This included a negative impact of 5.9% from foreign currency translation, 4.1% from lower unit volumes and 1.4% from unfavorable product-price mix. The decline in unit volumes was primarily seen in industrial businesses.

Excluding the currency exchange effect, the Food Packaging posted a 4% increase in net sales due to higher unit volumes in North America. The remaining three segments reported lower sales (excluding a negative currency translation impact) due to lower unit volumes in Europe and North America.

However, Sealed Air posted strong margins during the quarter, reflecting the effectiveness of the company’s ongoing cost control efforts. Gross margin increased 470 basis points year over year, while operating margin was up 390 basis points. This reflects the benefits of the company’s global manufacturing strategy, cost reduction and productivity programs, which together resulted in approximately $20 million of benefits during the quarter.

Sealed Air is pursuing a multi-year global manufacturing strategy to revitalize its bottom line. The company plans to build manufacturing plants close to the markets it serves, with the bulk of production being transferred overseas. Apart from its global manufacturing strategy, the company is also aggressively managing its overhead costs.

Sealed Air raised its full year earnings guidance to $1.37 - $1.45 from the previous guidance of $1.25 - $1.45. The company expects to continue to realize benefits from its cost reduction and productivity programs in the fourth quarter.

Other packaging companies, Sonoco Products Company (SON - Analyst Report) and Pactiv Corp. (PTV - Analyst Report) also reported better-than-expected third quarter earnings and raised their full year earnings estimates.

Oct 29 05:22 PM

[Paul Price:]

Zacks makes Sealed Air their "Bull of the Day" stock...








Bull of the Day


Sealed Air Corp. (SEE)


By: Zacks Equity Research
November 17, 2009

Sealed Air Corporation ([url=javascript:void(... - Analyst Report) reported third quarter 2009 EPS of 38 cents, above the Zacks Consensus Estimate of 33 cents and the prior-year EPS of 28 cents. The company raised its full-year 2009 EPS guidance to a range between $1.37-$1.45.

The company expects to continue to realize benefits from its cost reduction and productivity programs in the fourth quarter. Also, the company is witnessing improved market conditions in developing nations. Sealed Air posted double-digit sales increases in some of these markets.

Based on the improved outlook, as well as the company's efforts to revitalize its bottom-line, we are upgrading the rating on the stock to Outperform.

Nov 17 08:19 AM