Tupperware Brands (NYSE:TUP) reported stunning growth in revenue, earnings, and cash flow in in the third quarter. Despite its spectacular rise this year, TUP stock is set to do extremely well over the next year as earnings and cash flow continue to surge.
Tupperware produced $477 million in sales during Q3. That was 14% over a year, but up 20% from the prior quarter.
Going forward, it looks like Tupperware’s finances will help push TUP stock substantially higher.
Impressive Financials
Moreover, adjusted earnings per share (EPS) rose 233% to $1.20, up from 36 cents per share. Almost a quarter (24%) of that 84 cents per share uplift in earnings came from a discounted buyback of its debt.
More importantly, the company generated $59.9 million in free cash flow (FCF). That represents 12.6% of its revenue. This is a very high and attractive FCF margin. It will be very helpful for the company to reduce its debt.
In fact, it is likely Tupperware will be able to meet most of its debt obligations next year based on its free cash flow. It has to retire, pay down or refinance $380 million by June of 2021.
So, for example, if sales average $500 million or so over the next year, it can produce 12.6% of that amount or $252 million (i.e., 12.6% times $2 billion) in FCF.
In addition, the company has a line of credit that it can use to cover the rest. But, let’s look at what is causing the huge increase in earnings and cash flow.
The At-Home Factor
The company calls it “right-sizing” their business. But what is really going on is that people are staying home more and eating their own cooked food. They are also concerned about food safety and storage. All of this has led to a huge increase in sales.
The main catalyst for this was the lockdown restrictions. The company says it was “social restrictions surrounding Covid-19, and the increased consumer demand for our innovative and environmentally friendly products.”
It simply boils down to this: people are buying more Tupperware stuff. It’s a change in behavior that is likely to last even if the restrictions ease off, as they did a good deal during Q3.
Keep in mind though that the world now seems to be going through another round of lockdown restrictions, especially in Europe. Everyone says this is likely to carry over to the U.S. soon. So I suspect that at least for the next several quarters Tupperware will have another set of remarkable quarters.
What Analysts Say About TUP Stock
As The Wall Street Journal puts succinctly puts it, Tupperware has “come out of the deep freeze.” Tupperware parties are happening on Zoom, the company is cutting costs and the company is reducing debt. The Journal says it is trading for just 11x earnings.
For example, Seeking Alpha reports that analysts project EPS of $2.95 this year. At today’s price of $30.76 (Nov. 2) that puts it on just 10.4x earnings.
However, those same analysts forecast lower EPS next year of just $2.86. In other words, it’s like they don’t believe in a real transformation in the company’s earnings power.
That seems to have bled over into their target prices for TUP stock. For example, TipRanks reports that four analysts who have written on the stock have an average target of $33.33 per share. That represents a potential gain of 8.36% over today’s price.
What To Do With TUP Stock
TUP stock is trading at a significant discount to some of its peers. This implies that the stock is worth a good deal more than today.
For example, Lifetime Brands (NASDAQ:LCUT) trades at 18.5x this year’s earnings and 12.5x next year. In addition, Newell Brands (NASDAQ:NWL) is at 11.8x this year and next year’s forecast earnings.
These comparisons imply that TUP stock should be at least at 12 to 14x earnings or so. That would put it at $35.40 to $41.30 per share. Let’s call it $38.35 per share. That implies a potential gain of 25% from today’s price.
There is obviously no guarantee that TUP stock will reach this target. However, over time the company’s debt will be paid off. This will make it clear that Tupperware has enough free cash flow to restore its dividend. That will help TUP stock to move closer to this target price.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
