Depressed Valuation Fetches Multi-Color Corp. An Upgrade, Despite Risks

Multi-Color Corporation LABL shares have declined 11 percent year-to-date period compared to a 1-percent increase for the S&P 500 Index, reflecting operational problems that have weighed on the labelmaker's fiscal results, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc analyst Adam Josephson upgraded shares of Multi-Color Corp. from Underweight to Sector Weight with no assigned price target. 

The Thesis

Multi-Color Corp. shares are not without further risks, with operational issues in recent quarters and elevated leverage at 5 times its EBITDA, Josephson said in a Tuesday note. (See the analyst's track record here.) 

"In the event of an economic downturn, the company's leverage could pose a problem, particularly if combined with further execution hiccups," Josephson said. 

But Multi-Color's valuation now appears more reasonable, he said. 

"The stock is also trading in line with its historical average on our CY18 EBITDA estimates (9.4x vs. its three-year average of 9.5x), and at a slight discount to its peer group, which is in-line with where it has traded historically." 

KeyBanc lowered its 2018 adjusted earnings per share estimate from $3.83 to $3.75 on the basis of weaker-than-expected fiscal third-quarter results and reduced expectations for fiscal 2018. The firm also reduced its 2019 adjusted earnings per share estimate from $4.25 to $4.15, remaining well below the consensus of $4.40, apparently due to lower organic EBIT growth assumptions.

The Price Action

Multi-Color Corp. shares are down more than 12 percent over the past year.

Reacting to the Q3 results released Tuesday, the shares slid 7.30 percent to $66.70. The stock was up 0.19 percent at $66.82 early in Wednesday's session. 

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