On Wednesday Tupperware Brands Corp.'s (TUP) management said the company's fourth-quarter matched estimates but announced reduced guidance for 2019. They now think the firm will earn about $4.10 in adjusted EPS, versus analysts' expectations for $4.50.
It would have made logical sense for the shares to drop about 8% to 9% in line with the trimmed forecast. Instead, TUP cratered by almost 30% after the stock's quarterly payout was reduced 60%, from 68 cents to 27 cents. An estimated $80 million in annual savings will go towards growth initiatives and share buybacks.
At its quote on Thursday of $27.27, TUP is now offered for just 6.6x this year's estimated earnings. That compares very favorably with a typical multiple of around 15.3x. Today's P/E represents a better than 56% discount.
From 2010 through 2018 Tupperware averaged a shade over 4% in current yield. After adjusting for the newly reduced rate, the stock still yields a generous 3.96%.
There's no reason TUP can't rebound to a more normalized 15x multiple once the old "income crowd" who were appalled at the dividend cut, has finished selling in disgust. That modest scenario supports a 12-month target price north of $61.
Achieiving that price point would translate into a 125.6% gain and greater than 129% in total return. Wow.
Is that realistic? You bet it is. Tupperware topped out between $66 and $97 per share during each of the previous eight years. It hit $54.20 nine years ago, in 2010, when full-year EPS were on pace for $3.53. TUP's 2009 dividend was lower than the current rate.
This week's selloff appears to be a gross overreaction.
Before this retreat, TUP hadn't changed hands below $29 since the dark days of early 2009. A decade ago Tupperware plunged from a 2008 peak of $45 to a March 2009 nadir of $10.90.
Brave souls who bought, rather than sold TUP, were rewarded with a rebound to $50 before the end of December, just nine months later.
You don't get many chances to buy decent companies at under seven times earnings. It's even rarer to collect almost 4% as well, while you wait for the inevitable bounce back.
Option writers can lock in terrific premiums by selling Jan. 15, 2021, expiration date in-the-money puts. Actual pricing for the $30, $35 and $40 strikes is shown below.
Worst-case, forced purchase prices dropped to laughable levels from 7.5% to 17.8% below TUP's already cheap price. Maximum profits run from $760 to $1,480 per 100-share commitment.
Tupperware remains a well-known and beloved brand that is sold and used around the world. Value Line's 2021 to 2023 projected price range for TUP sits at $75 to $115. Its analyst expects Tupperware's EPS to rise to $6 not later than 2023.
Buy some stock, sell some puts or consider doing both.
At the time of publication Price was long TUP shares, short TUP Jan. 2021 puts.