In this article, let's take a look at Bemis Co Inc. (BMS, Financial), a $4.3 billion market cap company, which is a leading maker of a broad range of flexible packaging and pressure-sensitive materials.
Manning & Napier Advisors, Inc upped its stake in the second quarter of 2015 by 13.47% to 41,030 shares. Let´s see some reasons that justify this bullish sentiment.
Recent results
The company reported second-quarter earnings of $0.67 per share, up 11.7% from $0.60 earned in the year-ago quarter. However, it misses estimates by a penny.
Net sales declined 6% year over year to $1.030 billion and can be divided into two. First, the U.S. Packaging segment decreased 4.3% year over year to $694.7 million. Among the reasons, we can find a decline in volumes. Second, the Global Packaging segment decreased 9.7% year over year to $335.6 million, but excluding currency translation effects, this segment increased 6.2% year over year, due to unit volumes and prices.
New long-term strategy
Time for lower-margin business had gone, and Bemis focuses on a new strategy, which consists of high-margin products like the ones that offer meat, cheese and liquids. We can see this move as a long-term strategy which is in line with the firm's strengths. Further, ex-costumers are returning back to the company for higher-quality products and no longer look at lower-priced packaging options.
One important advantage that Bemis has is the capacity to pass higher costs to its customers and thus does not loose margins.
On the other hand, one important risk is the great exposure to some regions, like Brazil. The South American country is growing slower than expected. However, the past days, the firm agreed to acquire the rigid plastic packaging operations of Emplal Participações S.A., a Brazilian company. We believe this is a step to expand its operations into South America and we must say that we think this is a risky business considering the economic environment this country is facing.
Acceptable dividend yield
Since 1922, Bemis has demonstrated its commitment to return cash to investors in the form of dividendsas it generates healthy cash flow on a regular basis. Dividends of $1.12 per share yield 2.5% which is ranked higher than 55% of the 339 Companies in the Global Packaging & Containers industry.
Furthermore, the company has repurchased 1 million shares for almost $46 million and about 4.9 million shares were available for repurchase as of 30 June.
Relative valuation
In terms of valuation, the stock sells at a trailing P/E of 34x, trading at a premium compared to an average of 18.8x for the industry. To use another metric, its price-to-book ratio of 3.24x indicates a premium versus the industry median of 1.29x while the price-to-sales ratio of 1.05x is above the industry median of 0.76x. All the ratios indicate overvaluation and are close to a 10-year high.
Final comment
Customers are returning to buy the company´s products due to its higher-quality. We still believe this company has strong competitive advantages in its major flexible packaging categories like meat and cheese and dairy and liquids.
The company has a pattern of positive EPS growth over the past years and the company's shares gained 14% over the past 52-weeks.
Further, share repurchases clearly will benefit shareholders, as well as the dividend program.
Disclosure: Omar Venerio holds no position in any stocks mentioned
