Enjoy a 6.2% dividend yield as this company carries on transforming itself.
A challenging year ahead, but Mativ can muddle through
Lee Samaha (Mativ Holdings): The company is a creation of the merger between Schweitzer-Maudit and Neenah in 2022. The rationale behind the merger is relatively simple to understand. The two were relatively small companies looking to accelerate their growth rates by buying specialty materials and paper companies. In doing so, they would move their shrew of revenue away from lower growth end markets like tobacco papers.
With this history in mind, it made sense to take the mergers and acquisitions activity to the next level and merge the two companies to generate significant cost synergy from the deal. h Management continues to plan for $65 million in cost synergies overall, with a run rate of half that amount by the middle of 2023. Turning to the financial guidance for 2023, CFO Andrew Warmser said the following on the recent earnings call “we think it’s fair to say that the full year 2023 consensus EBITDA estimate of nearly $390 million appears reasonable.”
EBITDA stands for earnings before interest, taxation, depreciation, and amortization – a standard measure of earnings. The Wall Street consensus for EBITDA in 2023 is actually $386 million with earnings per share of $2.54 – more than enough to cover the $1.60 dividend per share.
The numbers look attractive, but Mativ will have to navigate an uncertain end-market environment with industrial customers destocking as their end demand slows. In addition, many of their customers previously built up inventory to get ahead of supply chain difficulties. Meanwhile, competitor 3M has given a lackluster outlook for 2023.
All told, Mativ faces a combination of end market headwinds and earnings tailwinds from self-help actions (merger synergies). Nevertheless, if it can muddle through in 2023, investors could enjoy a high-yield stock with decent growth prospects in the coming years.
