In this article, let's take a look at Bemis Co Inc. (BMS, Financial), a $3.94 billion market cap company, which is a leading maker of a broad range of flexible packaging and pressure-sensitive materials.
Long-term strategy
The company focuses on staying away from lower-margin business (for example bread end markets). The new strategy consists on high-margin products like the ones that offer meat, cheese and liquids. This is viewed as a long term strategy that is in line with the firm's strengths. This clearly will benefit shareholders.
Regaining market share
It seems that times of recession have passed away, and customers are returning to buy the company´s products due to its higher quality.
Thinking about the future, we believe that the trend will be to shift from metal and glass packaging to other alternatives that are cheaper like plastic, with the advantage of flexibility.
Recently the company announced a deal with a private equity firm in order to sell some pressure-sensitive material business, so some extra cash will be generated. This is expected to happen by the end of the year.
Dividends in the next years
Since 1922, Bemis has demonstrated its commitment to return cash to investors in the form of dividends as it generates healthy cash flow on a regular basis. In February 2014, it increased the dividend to an annual rate of $1.08 per share from $1.04 per share. The current dividend yield is 2.7% which is higher than the dividend yield of the S&P 500.
Revenues, margins and profitability
Looking at profitability, revenue declined by 4.8% while earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.65 vs $0.52). During the past fiscal year, the company increased its bottom line. It earned $2.04 versus $1.65 in the prior year. This year, Wall Street expects an improvement in earnings ($2.50 versus $2.04)
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| BMS | Bemis | 13.7 |
| SEE | Sealed Air Corp. | 13.95 |
| MWV | MeadWestvaco Corp. | 24.37 |
| PKG | Packaging Corp of America | 33.78 |
| SON | Sonoco Products Co | 13.18 |
| Â | Industry Median | 8.36 |
The company has a current ROE of 13.7% which is higher than the industry median and the one exhibited by Sonoco Products Co (SON, Financial) and slightly below Sealed Air Corp. (SEE, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So, MeadWestvaco Corp. (MWV, Financial) and Packaging Corp of America (PKG, Financial) could be the options.
It is very important to understand this metric before investing, and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 18.0x, trading at a discount compared to an average of 20.0x for the industry. To use another metric, its price-to-book ratio of 2.35x indicates a premium versus the industry average of 1.77x while the price-to-sales ratio of 0.81x is below the industry average of 0.82x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $17.781, which represents a 12.2% compound annual growth rate (CAGR).
The company has a pattern of positive EPS growth over the past years.
Final comment
We see that this company has strong competitive advantages in its major flexible packaging categories like meat and cheese and dairy and liquids.
The PE relative valuation and the return on equity that significantly exceeds the industry average and make me feel bullish on this stock.
Hedge fund gurus like Bill Frels (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
