An Excellent Buy-and-Hold Candidate for Your Portfolio
Palwasha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When you're a stock analyst and blog for a renowned financial services company (you must have heard of The Motley Fool), it is but natural that you read, and read a lot. You follow tons of companies, their financial statements, their earnings announcements and everything about them. There are companies about which a lot is said. There's Apple, there's Google, there's Coca Cola. And then there are companies with household names that are recognized by millions around the globe but very little about them is said. Tupperware Brands ) is one such company.
The company particularly caught my attention after its latest earnings announcement this week. This earnings season, when most companies have either missed earnings or revenue or both forecasts or barely met them, Tupperware beat analysts' Q3 forecasts of EPS by $0.05, reporting EPS of $0.95 and revenue forecasts by $12 million, reporting $594.4 million in sales.
Tupperware, best known for its plastic food storage boxes, canisters and related kitchen products, branched out in 2005 to the beauty and personal care products' sector, changing its name from Tupperware to Tupperware Brands and adding seven beauty care brands to its portfolio, namely Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics and Nuvo. So now Tupperware holds eight brands in total in two completely different sectors. Talk about diversification! The company sells its products around the globe in more than 100 countries, with emerging markets of Latin America, Brazil, Asia, and India contributing the biggest chunk of its revenues.
A Quick Look at Q3
This quarter's EPS showed growth of 400%. The company generated $45 million this year from operating activities net of investing activities, compared to last year's $20 million. Regions that did better than expected include France, Turkey, Australia, New Zealand and India. Sales were down in the U.S. and Canada because of company's less aggressive pricing and promotions than last year. The strengthening dollar remained a problem for the company as unfavorable currency translations caused its revenues to slide a little. Ignore the currency movements and revenues were up 5%.
Tupperware management's fourth quarter EPS guidance stands in the range of $1.66-$1.71. Full-year adjusted EPS outlook is now $4.94-$4.99, ahead of analysts' average estimates of $4.88. The holiday season Q4 is supposedly the best quarter for the company, so we can expect these estimates being materialized.
The Business Model
Much like its competitor of personal care and beauty segment, Avon Products ), Tupperware uses a direct sales model, whereby its products are sold by its independent representatives (more than two and a half million women) around the world. However, unlike Avon which has faced troubles to remain competitive in the industry, Tupperware has done quite well as a business (again, mostly likely because of the diversified nature of its business segments). Tupperware has gradually moved to more formal selling through dealerships, however its famously pioneered Tupperware parties (where women host parties at home and sell Tupperware products to friends and families in exchange for company rewards) continue to remain a fun-filled source of revenue generation.
The Strongest Fundamentals
Tupperware has the lowest levels of long term debt at only $655.8 million (and thus lowest burden of interest expense), against its beauty and personal care segment peers, Avon's $3.53 billion and Estee Lauder's (NYSE: EL) $1.29 billion, and its kitchen storage solutions segment peer, Newell Rubbermaid's ) $2.49 billion. Gross Margins are second highest at 66% and Net Margins are the highest at 8%. ROA is second highest at 11% and ROE is the highest at 40%. With current ratio of 1.22 and cash & equivalents of $113.8 million, the company is in a good position to cover its current liabilities as they come due.
Its forward P/E of 11.93 and systematic risk (beta) of 0.93 are the lowest amongst peers.
Data Source: Nasdaq
Double the Shareholder Rewards
Few companies reward shareholders with both increasing dividends and share buybacks. Tupperware has stepped up on dividends every year for the last four years. Its current dividend yield stands at 2.72%, the second highest amongst peers, Avon (5.77%), Estee Lauder (0.8%) and Newell Rubbermaid (2.01%).
The company's management also clearly finds its stock as being undervalued which is why we've seen strong buyback activity with more than 5% of its outstanding shares bought back over the last twelve month period. The company repurchased 469,000 of its shares for $25 million in latest Q3 and is expected to repurchase another $100 million worth of shares in the fourth quarter. Full year repurchases for FY12 will then sum to $200 million. Together, this year's dividends and repurchases will amount to a little less than $5/share being returned to shareholders. Since 2007, the Company has repurchased 14 million shares for $728 million and can repurchase additional shares worth $472 million until February 1, 2015.
In a Nutshell
With an average EPS of $4.97, a forward P/E of 11.93 gives the stock a fair value of $59.29. Currently trading at 1.9% discount from this estimated fair value and with a diversified business model, great strength in emerging markets, very strong fundamentals, a history of returning value to shareholders and a low beta/market risk, this stock is an excellent buy-and-hold investment for your portfolio.
PalwashaS has no positions in the stocks mentioned above. The Motley Fool owns shares of Tupperware Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.