NEW YORK (TheStreet) -- Shares of MeadWestvaco Corp. (MWV - Get Report) are up 4.41% to $42.37 after it was reported that activist investor Starboard Value LP reported a 5.6% stake in the company and said the packaging materials maker's stock was "deeply undervalued," according to Reuters.
Starboard, in a letter to the company, also said its management should take steps to improve operating margins and capital allocation and consider separating non-core assets.
The company has the highest ratio of selling, general and administrative expenses to sales in the industry due to excessive corporate expenses and higher-than-average operating costs, Starboard said in the letter, released today, Reuters said.MeadWestvaco, which makes packaging materials for the healthcare, personal care, food and beverage, and agricultural industries, has a market value of about $7 billion. TheStreet Ratings team rates MEADWESTVACO CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation: "We rate MEADWESTVACO CORP (MWV) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow." Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- MEADWESTVACO CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, MEADWESTVACO CORP increased its bottom line by earning $1.78 versus $1.21 in the prior year. This year, the market expects an improvement in earnings ($1.80 versus $1.78).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Containers & Packaging industry. The net income increased by 181.8% when compared to the same quarter one year prior, rising from $11.00 million to $31.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 5.8%. Since the same quarter one year prior, revenues slightly increased by 0.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.
- You can view the full analysis from the report here: MWV Ratings Report