Multi-Color Corporation (LABL, $72.10): “A Pot of Gold at the End of This Rainbow?”
By: Max Mattappillil, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
• Multi-Color Corporation. (NASDAQ: LABL) is a global leader in label solutions and supports many of the most prominent brands in the world. They cater to producers of home & personal care, wine & spirits, food & beverage, as well as healthcare and specialty consumer products.
• Operations have expanded globally at quite an accelerated rate.
• New management in the coming months.
• Prominent players have increased their stake in Multi-Color.
Key points: Multi-Color has completed numerous acquisitions this year, many of which have expanded the company’s international presence. In addition to their European acquisitions in France and Germany, Multi-Color is on the move in Africa as well as Oceania. Their startup company in New Zealand has begun to print labels and the move into Tanzania provides Multi-Color with a wide set of opportunities in this new space.
One of the biggest changes to Multi-Color comes from the billion dollar acquisition of the Austria-based Constantia Flexible, of which Multi-Color acquired their label-making division. Other than the obvious increase in European opportunities, the acquisition should be able to increase Multi-Color’s presence within Asia. Yet Constantia Flexible is more than just another company Multi-Color has partially acquired as the current executive vice president and head – Mike Henry – will be the new CEO of Multi-Color by January 2018. Although a new CEO could always spin the business into potentially undesired direction, former CEO Nigel Vinecombe will remain as executive chairman. Thus, a new flair on the company’s strategy combined with Vinecombe’s guidance may be optimal for Multi-Color going forward.
In terms of how other institutions have responded to the news, it seems to have been received in a positive light. Wells Fargo and JP Morgan have increased their stake in the company by 11% and 113% respectively. Additionally, Citadel just purchased a new position in the company which may be growing, considering Multi-Color’s recent activity. The combination of new business ventures in addition to increasingly positive sentiment could be the necessary tailwind to boost the company back to $80 or more per share.
What has the stock done lately?
Over the past one and a half weeks, LABL’s share price has fallen 11% with three significant drops occurring between November 7th and 9th. LABL also announced a dividend for shareholders as of November 15th and will be paid on December 1st, in line with their strong, annual dividend yield of 5.9%. LABL’s recent acquisitions and global expansion could breathe more life into the company and provide a nice boost to get back near its $87 high.
Past Year Performance:
LABL is effectively at the same price 12 months ago despite ranging from a low of $67.56 to a high of $87.38. The past three fiscal quarters have also seen an increase in sales QoQ while operating margins, albeit remaining in the low double digits, have slightly decreased QoQ as well.
Since the company was first pitched back in April 2016, a maximum upside of nearly 71% was reached at the stock’s height, providing strong support to the AIM portfolio. Despite the recent decline in share value, Multi-Color appears to be on the rise once again and may be in line to exceed its previous high of $87 based on the company’s projected outlook. The introduction of new management may be a little rocky for Multi-Color initially, but keeping Vinecombe at an influential level in the company should mitigate any short-term volatility. In the meantime, a 6% annual dividend for current shareholders should keep investors happy.