In this article, let's take a look at Bemis Co Inc. (BMS, Financial), a $4.7 billion market cap company, which is a leading maker of a broad range of flexible packaging and pressure-sensitive materials.
High-Margin Products
The company focuses on staying away from lower-margin businesses. Also, it has economies of scale that create barriers to entry for competitors.
The new strategy consists of 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, as well as the dividend program.
Dividend Program
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. A few days ago, the Board of Directors has approved a 4% increase in the quarterly cash dividend, increasing it to 28 cents per share compared to the previous quarterly dividend of 27 cents per share. The current dividend yield is 2.3% which trails the dividend yield of the S&P 500.
William F. Austen, Bemis Company's President and Chief Executive Officer said that "our annual cash dividend has increased consecutively for 32 years, reflecting the confidence of our Board of Directors in our ability to generate strong cash flow and achieve our long-term growth targets."
Revenues, Margins and Profitability
Looking at profitability, revenue declined by 3.01% but earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.57 vs $0.49). During the past fiscal year, the company increased its bottom line. It earned $2.36 versus $1.86 in the previous year. This year, Wall Street expects an improvement inearnings ($2.60 versus $2.36).
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 | 11.82 |
| SEE | Sealed Air Corp. | 18.99 |
| MWV | MeadWestvaco Corp. | 7.41 |
| PKG | PackagingCorp of America | 26.78 |
| SON | SonocoProducts Co | 14.22 |
| Industry Median | 8.12 |
The company has a current ROE of 11.82%, which is higher than the industry median and the one exhibit by MeadWestvaco Corp. (MWV, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So, Sealed Air Corp. (SEE, 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.
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Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 26.2x, trading at a premium compared to an average of 23.0x for the industry. To use another metric, its price-to-book ratio of 3.36x indicates a premium versus the industry average of 1.84x while the price-to-sales ratio of 1.12x is above the industry average of 0.92x.
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 $19,661, which represents a 14.5% compound annual growth rate (CAGR).
http://www.gurufocus.com/chart/BMS#&serie=,,id:per_share_eps,s:BMS"> src="http://chart.gurufocus.com/1425594613965.png" />
The company has a pattern of positive EPS growth over the past years and the company's shares by a sharp 26% over the past year.
Final Comment
With the economic recovery, customers are returning to buy the company´s products due to its higher-quality. We believe this company has strong competitive advantages in its major flexible packaging categories like meat and cheese and dairy and liquids.
Thinking about the future, we still 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.
The PE relative valuation and the return on equity that significantly exceeds the industry average make me feel bullish on this stock.
Hedge fund gurus like Paul Tudor Jones (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) bought the stock in the fourth quarter of 2014, as well as Manning & Napier Advisors, Inc.
Disclosure: Omar Venerio holds no position in any stocks mentioned
