Should You Buy It? Bemis Is Bueno

Shares of BemisBMS have struggled over the past year, Wednesday's closing price of $27.07 representing a 19% drop from 12 months ago. The consumer-packing manufacturer saw profit decline 5% in 2007, as it could not cut costs fast enough to offset sluggish demand and rising input prices.

That said, the company currently sports a 3.3% dividend yield, which is about 110 basis points higher that what the average name in the S&P 500 offers. Bemis boosted its payout for the 25th consecutive year Jan. 31, to 22 cents a share, and will likely announce its next dividend in May. Management is on track to cover the payment two times with expected 2008 earnings of $1.80 a share.

Operating cash flow was 2.2 times greater than reported net income over the past four quarters, and the company also has pledged to use its strong cash flow to buy back 5 million shares over time. It's also worth noting that Bemis' bonds garner an A-rating from the major agencies.

With that in mind, I'm here to answer readers' questions: Should you buy it? Is Bemis' dividend yield enough to entice investors to the stock, or is the name a potential value trap? Looking at value stocks is my bailiwick here at TheStreet.com, where I run the Value Investor service. (Click here for a free trial.)

Bemis announced Feb. 1 that COO and President Henry Theisen would be promoted to CEO. He succeeded Jeffrey Curler, who held the position for eight years and will continue to serve as the company's executive chairman. Within a couple of weeks of taking office, Theisen gave a presentation at an investment conference, stating Bemis' targets for 6% to 8% sales annual growth and 10% earnings and operating cash flow expansion.

Bemis is scheduled to post first-quarter results the morning of April 29, with the consensus analyst estimate calling for earnings of 41 cents a share on revenue of $899.1 million. The company has met or exceeded profit expectations in three of the past four quarters, and could generate a similar result this time around.

For one thing, prices of polyethylene, a major input cost for the company, were largely flat during the quarter and fell during April. Bemis is also somewhat insulated from the slowing U.S. economy, as the company generates about 35% of its total revenue overseas.

At current levels, Bemis is trading at 14.9 times expected 2008 earnings. This values the stock at an 11% discount to its average historical valuation. It's also worth noting that the shares have generally bottomed in recent years when the dividend yield has moved up toward 3%.

With that in mind, the answer to my question is, yes, I believe that readers should purchase Bemis at current levels. The stock is already pricing in lackluster results in the upcoming quarterly report, despite the company's guidance for a recovery in sales and earnings in 2008.

Add in that fact that polyethylene prices have begun to pull back from recent highs, and I believe investors could seek out Bemis' above-average dividend yield in this volatile market environment.

Bemis is not included in TheStreet.com Value Investor model portfolio. David Peltier writes regularly about value stocks, such as MerckMRK, MotorolaMOT and Norfolk SouthernNSC for TheStreet.com.