Sealed Air Corporation (NYSE:SEE) shares are down more than -0.79% this year and recently increased 1.42% or $0.63 to settle at $44.98. Berry Global Group, Inc. (NYSE:BERY), on the other hand, is up 20.19% year to date as of 11/13/2017. It currently trades at $58.57 and has returned -0.07% during the past week.
Sealed Air Corporation (NYSE:SEE) and Berry Global Group, Inc. (NYSE:BERY) are the two most active stocks in the Packaging & Containers industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect SEE to grow earnings at a 10.30% annual rate over the next 5 years. Comparatively, BERY is expected to grow at a 16.42% annual rate. All else equal, BERY’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 17.43% for Berry Global Group, Inc. (BERY). SEE’s ROI is 14.60% while BERY has a ROI of 8.50%. The interpretation is that SEE’s business generates a higher return on investment than BERY’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. SEE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.67. Comparatively, BERY’s free cash flow per share was +1.34. On a percent-of-sales basis, SEE’s free cash flow was 2.27% while BERY converted 2.69% of its revenues into cash flow. This means that, for a given level of sales, BERY is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SEE has a current ratio of 1.70 compared to 1.80 for BERY. This means that BERY can more easily cover its most immediate liabilities over the next twelve months. SEE’s debt-to-equity ratio is 4.35 versus a D/E of 6.97 for BERY. BERY is therefore the more solvent of the two companies, and has lower financial risk.
SEE trades at a forward P/E of 18.11, a P/B of 11.05, and a P/S of 1.73, compared to a forward P/E of 17.01, a P/B of 9.00, and a P/S of 1.13 for BERY. SEE is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SEE is currently priced at a -8.52% to its one-year price target of 49.17. Comparatively, BERY is -12.15% relative to its price target of 66.67. This suggests that BERY is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for SEE and 1.90 for BERY, which implies that analysts are more bullish on the outlook for SEE.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. SEE has a beta of 1.21 and BERY’s beta is 1.08. BERY’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. SEE has a short ratio of 2.64 compared to a short interest of 2.12 for BERY. This implies that the market is currently less bearish on the outlook for BERY.
Berry Global Group, Inc. (NYSE:BERY) beats Sealed Air Corporation (NYSE:SEE) on a total of 12 of the 14 factors compared between the two stocks. BERY generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, BERY is the cheaper of the two stocks on an earnings, book value and sales basis, BERY is more undervalued relative to its price target. Finally, BERY has better sentiment signals based on short interest.