On Nov 25, Zacks Investment Research upgraded MeadWestvaco Corporation (MWV) to a Zacks Rank #1 (Strong Buy), driven by its strong third-quarter 2014 results, positive outlook and ongoing value-based pricing initiatives.
Why the Upgrade?
MeadWestvaco has been witnessing positive estimate revisions on the back of strong third-quarter results reported on Oct 28. Adjusted earnings surged 70% year over year to 63 cents per share, benefiting from strong operational performance, gains in productivity from major efficiency investments and cost reduction actions. It topped the Zacks Consensus Estimate by a dime.
Though MeadWestvaco did not provide any specific guidance for fiscal 2014, it expects fourth-quarter 2014 earnings to be above the year-ago level. The improvement is expected to be driven by benefits from commercial and operational excellence strategies, as well as continued contributions from productivity improvements and cost saving initiatives.
Further, fourth-quarter results are expected to get a boost from higher consumer and industrial packaging volumes, ongoing value-based pricing initiatives across all packaging businesses, productivity improvements and continued operating leverage from increased mill and plant utilization rates.
Notably, MeadWestvaco embarked on an enterprise-wide overhead cost reduction plan in Apr 2013, which is expected to lead to cost savings of around $75 million by the end of 2014. Savings associated with the initiative were $43 million in 2013. The company remains on track to achieve its target by end 2014.
In Jan 2014, the company announced a new program that will simplify the structure of its packaging businesses and save $100 million to $125 million by 2015. Of this, at least $75 million is expected to be realized this year.
In addition, the company continues to expand its presence in the emerging markets through continued investments in Brazil, India and China. These markets provide a larger platform for growth where economic activity is well above the developed countries and the growing middle class is increasingly demanding higher-quality goods and packaging materials.
These bullish factors have led to upward estimate revisions for the stock. Over the last 30 days, 5 estimates moved up for both the current year and 2015. The Zacks Consensus Estimate for 2014 advanced 5% to $1.84 per share while that for 2015 increased 3.7% to $2.25 per share.
Other Stocks to Consider
Some other stocks in the same sector that warrant a look include Allegion plc Ordinary Shares (ALLE), Adept Technology Inc. (ADEP) and Alamo Group, Inc. (ALG). All these stocks carry a Zacks Rank #1 (Strong Buy).
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