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Published: June 4, 2010
One of the pitfalls of being a global brand name is
that investors may think of a company as a one-trick pony that
captured lightning in a bottle. They may think a company has
leveraged its brand to a point where one can find its product in
the most remote corners of the world and believe the market for
this one product has been tapped out. Thus, investors pay it no
mind.
In that case, investors would be missing out on a great growth
opportunity from a premier brand like Tupperware Brands
Corporation (NYSE: TUP). Note the plural of the word
"brand," because Tupperware is no longer the company that only
makes plastic storage containers for your day-old pasta.
The company has expanded rather broadly, and is now also a
purveyor of beauty and personal care products under the Armand
Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare,
Nutrimetics, Nuvo and Swissgarde brand names. The company hasn't
abandoned the kitchen, though. It's still making serving dishes,
microwaves, knives, cookware and ovenware, as well.
What is it about Tupperware that has made it so ubiquitous? How
did it become this global brand name? The key to Tupperware's
success is two-fold. First, it makes quality products. More
importantly, however, it has a distribution system that is
second to none.
The Tupperware storage line is massive, encompassing some 1,800
distributors, 61,000 managers and 1.3 million dealers. For
awhile, Tupperware home parties were all the rage. When a
company successfully manages to make a party out of selling its
product, right in someone's own home, it has achieved the kind
of dominance that investors cannot ignore. Today, the beauty
line is almost as powerful, boasting 1.1 million salespeople.
This level of distribution efficiency sends a message to
retailers: Tupperware will always have stock. That creates brand
loyalty. And if you've ever tried to store food in a
non-Tupperware container, you know that other knock-offs are
inferior.
Tupperware also has its pricing and
expenses down to a science. Retail companies are often lucky if
they can manage a 5% net profit margin. Tupperware's is 9%,
practically unheard of.
How does this translate into the stock? The
company's expansion into new products has jumpstarted both these
new products and traditional storage products. Even though
earnings are projected to grow +23% this year -- in the middle
of a recession -- the stock currently trades at only 13.5 times
this year's earnings , giving it a
PEG Ratio of 0.58. This suggests the stock is undervalued (A
PEG ratio of 1.0 suggests a stock is fairly valued).
The message is clear: the market is unaware that Tupperware has
expanded as much as it has, and is doing so as profitably as it
has.
Investors checking into a growth story would always be wise to
examine how that expansion is funded. If a company takes on
expensive debt to grow, then it's a warning sign. Yet Tupperware
has no such concerns surrounding its financials.
For starts, Tupperware sits on $95 million in cash, The current
business generates more than $240 million in
free cash flow a year. That alone is enough to fund
expansion. Still, investors should make certain the debt load is
manageable. In this case, Tupperware carries $425 million in
debt at an average interest rate of about 7.5%. The rate is
higher than cautious investors might like to see, but
operational profits exceed debt service by an eight to one
margin, so there's no cause for concern. Toss in the fact
that Tupperware is comfortable paying a 2.5% dividend to
shareholders, and investors should rest easy knowing the company
is on solid financial footing.
Action to Take -->
Investors clearly see Tupperware as a boring stalwart, when in
fact it's more of a growth story trading at about a -40%
discount to
fair value. Given that other retailers are struggling in
this economy, investors should see Tupperware's stock as a great
place to store their money.
-- Frederick Steier
Contributor
StreetAuthority |
