Schweitzer-Mauduit International, Inc.
Schweitzer-Mauduit International, Inc. (NYSE: SWM) is a paper and resin-based product company with many products. It manufactures and sells paper, reconstituted tobacco items, and specialty paper products to the tobacco industry. The company's two business segments are Advanced Materials and Structures (AMS) and Engineered Papers (EP).
Why Should Investors Make An Exit?
- High Cash Conversion Days: Compared to the industry, the company has a long Cash Conversion Cycle (Days), meaning that it takes more days to convert its inventory to cash. In FY21, its Cash Cycle was 94.4 days, compared to an industry median of 65.9 days
- Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 1.86x as of December 31, 2021, compared to the industry norm of 0.26x. Furthermore, its long-term debt-to-total-capital ratio was 64.9%, compared to the industry average of 15.4% for the same period. These leveraged financials put the corporation at risk of huge swings due to the slightest adjustment in interest rates.
- Product Risk & Customer Demands: Changes in Recon product sales or production quantities, pricing and manufacturing costs, cigarette paper, and new technologies like e-cigarettes are all factors that the company must consider. In addition, because of changing customer demands, there is competition and changes in AMS end-market items.
- Technical weakness: On the weekly chart, SWM price are trading below the downward sloping trend line and facing the resistance of the same. Furthermore, the momentum oscillator RSI (14-period) is currently at ~29.86 level, trading in negative territory. On the weekly chart the price is trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at USD 21 while the key resistance level is placed at USD 30.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
SWM's share price has inclined 30.43% in the past six months and is currently leaning towards the lower band of the 52-week range of USD 25.29 to USD 50.63. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 22.31. Considering the company's highly leveraged balance sheet, high cash cycle, current valuation and associated risks. We recommend a "Sell" rating on the stock at the closing market price of USD 25.33, up 0.04% as of April 11, 2022.
Three-Year Technical Price Chart (April 11, 2022). Source: REFINITIV, Analysis by Kalkine Group
* The reference data in this report has been partly sourced from REFINITIV.
* All forecasted figures and industry information have been taken from REFINITIV.