Regulatory Trends Will Erode Legacy Packaging But Yield Cost Savings

Key Takeaways

• Reliance on legacy plastic packaging exposes Sealed Air to structural declines and persistent pressure on revenue, margins, and long-term relevance.
  
• Inadequate adaptation to sustainability trends and regulatory changes will erode profitability, amplify operating expenses, and accelerate customer attrition.
  
• Operational efficiency gains, business resilience, diversification, business transformation, and financial flexibility position Sealed Air for sustainable growth and improved profitability despite external challenges.

Catalysts

Provides packaging solutions in the United States and internationally, Europe, the Middle East, Africa, and Asia Pacific.

• The accelerating regulatory crackdown on plastics and mounting consumer preference for plastic reduction directly threaten Sealed Air’s core business, making it likely that demand for its legacy polymer packaging solutions will see persistent structural declines, pressuring long-term revenue growth.
  
• Rapid advancements in alternative materials, such as biodegradable and reusable packaging, will erode the market share of traditional plastic-focused providers like Sealed Air, causing gradual loss of relevance and creating a persistent drag on volumes, gross margin, and earnings power.
  
• Heavy reliance on plastic-based products, especially within the Food and Protective segments, will expose the company to chronic customer attrition, price concessions, and the potential loss of major contracts, fueling an extended period of top-line erosion and margin compression.
  
• Industry-wide shifts toward more agile, decentralized supply chains, and ongoing deglobalization, could negate Sealed Air’s scale advantages, erode pricing power, and reduce operational leverage, undermining profitability and making net margin recovery increasingly elusive.
  
• Extended Producer Responsibility fees, recycling infrastructure gaps, and rising costs to achieve environmental compliance will escalate operating expenses industrywide, and for Sealed Air—whose innovation in truly sustainable solutions lags niche competitors—this will likely result in lower net margins and diluted earnings over time.

Sealed Air Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Sealed Air compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Sealed Air's revenue will decrease by 0.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.7% today to 9.0% in 3 years time.
• The bearish analysts expect earnings to reach $492.5 million (and earnings per share of $3.35) by about May 2028, up from $303.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, down from 14.4x today. This future PE is lower than the current PE for the US Packaging industry at 20.2x.
• Analysts expect the number of shares outstanding to grow by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.51%, as per the Simply Wall St company report.

Sealed Air Future Earnings Per Share Growth

Risks

• Sealed Air’s modernization and cost takeout initiatives have improved operational efficiency and gross margins despite modest sales declines, suggesting that even in a challenging environment, the company can protect earnings through productivity gains.
  
• The Food packaging business has shown resilience and the capacity to grow with evolving consumer trends toward fresh and retail-ready food, supporting stable long-term demand and helping to protect or grow revenues even if some end markets weaken.
  
• The company’s geographic and product diversification—including growth in Asia, Latin America, and Europe—reduces exposure to market or regulatory shocks in any single region and positions Sealed Air to capture demand-driven growth, which can support revenue stability.
  
• Success in transforming the Protective business, with reduced customer churn, improved customer satisfaction, and a more efficient go-to-market approach, is beginning to drive sequential improvement in volume and margin, creating potential for earnings and top-line growth over time.
  
• Strong free cash flow generation, an improving leverage ratio goal, and sufficient liquidity provide financial flexibility for reinvestment, M&A, or further transformation, supporting confidence in Sealed Air’s ability to deliver on long-term earnings and margin improvement.

Valuation

• The assumed bearish price target for Sealed Air is $29.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sealed Air's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $29.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $492.5 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $29.79, the bearish analyst price target of $29.0 is 2.7% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.