Tupperware Brands Is Overvalued

Tupperware (TUP) may not produce the most exciting products on the market but its stock has performed extremely well. In stark contrast to the broad market, TUP is up more than 20% year to date, with much of that gain coming after posting strong fourth quarter ’07 results. Revenue jumped 19% and net income was up almost 38%. As a result, stock investors pushed TUP up in a big way--up more than 40% since the results were made public on January 29th. We offer congratulations to Tupperware shareholders but the stock is now overvalued and will not remain at such price levels for long.

The business has performed well of late and TUP has made significant gains internationally, as evidenced by the fourth-quarter results; however, one has to suspect that much of that strength has been priced-in to the stock through its recent out-performance. This rapid price appreciation puts TUP’s valuation metrics outside of its normal levels. As an example, price-to-cash flow is currently 10.57x, while TUP has historically traded in the range of 7.1x - 10x. Likewise, price-to-sales is normally .73x -1.09x and it is currently slightly out of range at 1.14x. These numbers are not massively out of line but are symptomatic of an overvalued stock, which--in this market--makes it an excellent “source of funds” as TUP’s recent capital gains are at risk.

Long-time TUP shareholders will surely recall the stock’s plummet from $55 a share in December of 1996 down to $11 in September of 1998. There is no evidence to suggest that a decline of that magnitude is in order, but it is worth noting that it has happened before. We have a long-term price target in the neighborhood of $32-$38. Therefore, we recently downgraded TUP to a Sell rating in our 4/5/2008 report. You will note from our recommendations at the bottom of the price chart, we have a very solid track record with this stock and rated it a Buy when it was trading in the low 20’s earlier this year.

Disclosure: None

Comments

[Ames Tiedeman:]

Nice analysis.

2008 Apr 17 07:05 PM

[Dan Jacome:]

Could you explain why TUP should trade at a lower multiple now? Is there anything in the company's fundamentals that suggest it is a good "source of funds" candidate???

We see a solid weak dollar play with 30% ROE, 15% EPS growth, a 6.5% free cash flow yield (2x the yld on a 5Y treasury) & 2.2% dividend -- this is the sort of monster you want to have in your portfolio when the economy gets shredded....

2008 Apr 27 10:55 PM

[bobbobwhite:]

Your statements about 40% price growth since 1/29 are specious, as the TUP price at that point was way down due to the January slump that affected almost all stocks similarly. Check the TUP chart and you will note that, exclusive of that slump, TUP growth is very steady and regular with no dramatic run ups. Please be more conservative and not so dramaticly distorted in your analysis.

2008 May 06 03:14 PM

[zendog:]

I shorted based on this article, rode out the brief spike to 44, and now in the money and holding to 35ish. Thanks S.A.!

2008 May 23 02:48 PM