Whenever there is a chance to invest in a household brand for what I believe is a discount I take notice. This week a certain household brand goes ex-div and, in my opinion, is currently being undervalued by the market. The stock...Tupperware Brands Corp (TUP).
If you are not familiar with TUP then my first question would be "Where have you been living?" and secondly "Where have you been living?".
Here's a quick synopsis of the company from www.gurufocus.com:
Tupperware Brands Corp is a direct selling consumer products company. It sells food preparation, storage, and serving products as well as cookware and microfiber textiles under the Tupperware brand name.
The D30 evaluation shows that while TUP sits at a high PE ratio currently (something I will get to later) it still is undervalued in terms of its current standing. While this isn't a huge potential it does present a small opportunity.
The weekly chart shows that TUP has been all over the map over the past year. Some issues in the 2nd quarter presented poorly to the market and TUP took a hit. Now it is on the way back North but is it time to buy?
When you take a look at the TUP D30 valuation you will see that it is not astronomically undervalued but does have some profitability left in the tank. The comparative values, such as PE and PB Ratios are high, but the Forward PE is actually at a rate 25% below the historical average of TUP. This is good news for those that want to jump into the water now.
The TUP dividend is something that really draws me to the company. Sitting at 4.21% and a payout ratio of just under 60% this meets my criteria. The dividend has not been increased since 2014 but this does look like a payout that will have reasonable safety as TUP works to get revenue growth back in line with the past.
TUP also is in the midst of a restructuring that they say will help them get back to their "core fundamentals". Along with some restructuring of some manufacturing locations in Europe, the company just recently sold their BeautiControl assets, a division that had lost 2.6 million in 2016. The free cash flow isn't in a bad place currently and this should help the cause.
The debt levels for TUP are pretty high with ratios that push below their historical mean and also test my patience in terms of where I like companies to be sitting. It is not like TUP is a company that is trending towards bankruptcy or anything like that, but in terms of financial health I would like to see the debt begin to be wiped off the slate. Also digging through the 3rd quarter filing will show an increase in YoY short term debt.
Another thing that I am not a huge fan of (although I have positions in stocks that do the same) is that TUP tries to keep their payout ratio at the 50% mark. This means that where they sit currently (57%) is a bit high and they note this in their 3rd quarter report. If they fail to return to some growth in the near term you may see a small cut in the dividend.
While TUP cites hurricanes and earthquakes as major reasons that they didn't produce the growth they were forecasting earlier this year I am more worried about the near zero revenue growth over the past five years. A restructuring plan sounds great and like the "guarantee fairy" in that hilarious Tommy Boy scene it does make you sound warm and fuzzy.
That really is my main problem with TUP as it currently sits. There is a lot riding on this so-called "restructuring" and also some new incentives for sales that are being used in Europe. There also is a lot riding on the international sales growth of TUP and while I can't speak a lot to that market what I can say is I'm not sure I trust that damn guarantee fairy.
Listen, if you are looking for a household name that is still somewhat undervalued, there aren't many around. TUP does seem to be one but with it comes a lot more risk than I may be willing to take. A recent interview on CNBC had the CEO playing television salesman with a bunch of gadgets that honestly don't seem like they are really revolutionary. Maybe I am wrong on this one but I am content to sit and wait as I watch what the next quarter entails. That being said, if you are looking for a brand you can trust to be around for awhile and are willing to take some potential bruises along the way then TUP may be for you.