Sealed Air’s Automation Offerings Pave a Runway for Future Growth

We are initiating coverage of Sealed Air SEE with a fair value estimate of $57 per share. We assign the firm a narrow moat rating, and we believe the company primarily benefits from switching costs and intangible assets. Sealed Air produces a wide variety of flexible resin packaging, protective shipping materials, and integrated packaging systems. Sealed Air’s two segments, food and protective, supply customers with both protective packaging materials and the equipment needed to apply it in a manufacturing facility. Customers with Sealed Air equipment onsite would find it costly and time consuming to switch from Sealed Air consumables. As a result, Sealed Air enjoys more pricing power on consumables than its more traditional peers.

We assign Sealed Air a stable moat trend rating because we don’t expect the firm’s competitive advantages to materially strengthen or weaken over the next five years. In the firm’s food segment, we see little reason to believe food processors will be any less focused on spoilage avoidance in the future than they are today. In addition, we think risks and costs associated with installing a new packaging system will remain sufficiently material to deter switching. We see similar dynamics in the firm’s protective business, where customers embed Sealed Air’s equipment within their manufacturing plant and cannot complete the production process without adequate packaging.

Sealed Air has seen strong demand for its materials and equipment in recent years as many customers have worked to reduce their labor costs and increase packaging efficiency. In response, Sealed Air has ramped up its product offerings and increased its focus on packaging solutions and automation. This plays well into the firm’s razor-and-blade model, where customers purchase equipment and subsequently purchase packaging materials for years thereafter. We think Sealed Air’s pivot toward packaging solutions and automation will drive growth over our forecast.