A Financial Analysis of Cenveo Incorporated

In every industry I believe there are a few select stocks, regardless of the economic condition in the nation, which reserve the right to be highly noted as buy recommendations. When looking at the profound but interesting industry of paper products, while there are some excellent choices in the large capitalization range such as with International Paper and Kimberly-Clark, I have found another, more subtle middle capitalization company which contains the fundamentals for potential success. Thus, through not only the fundamentals, but through the charts and economic relevance to profile, I believe Cenveo Incorporated (CVO) provides optimistic sentiments for all investors.

Specifically detailing what Cenveo actually produces, according to Yahoo! Finance?s profile, Cenveo is involved with two major segments relative to ?Envelopes, Forms, and Labels and Commercial Printing? Looking at the former component, while some argument may be presented that such business will decline with the advancement in technology, as a short term investment there will be ample need for these office-required products. I say such sentiment because as companies continue to expand and require official hardcopies of evidence, since Cenveo takes an active role in as a third party supplier of such instruments, there should be no problem, with expanding industries and business, to locate specific firms across North America to deliver service too. In addition, Cenveo?s second segment of business and revenue can be attributed to commercial printing. With use of products such as ?annual reports, car brochures, brand marketing collateral, specialty packaging, and general commercial printing,? because advertising plays such a large role to all companies, having proper hard copied printouts to distribute will always be necessary and effective to lure in more consumers. Furthermore, since the business Cenveo is in does not completely comply with cyclical forces, as printing and paper service will be required during all kinds of economic environments, with a possible economic slowdown approaching, there should not be too much concern of being defensive with your shares of this company.

Nevertheless, as I mention such notable attributes, there may be some concerns relative to fundamentals. While such tentativeness conveys the strength of an intelligent investor, relative to the industry, there should not be too much concern when speaking of Cenveo. When examining the top line over the past few years, revenue growth, while not extraordinary, has illustrated an upward potential for further growth. In addition, some criticism may be placed on unaccomplished earning growth over the past three years, resulting in a loss of 135 million in the fiscal year of 2005. However, because of some high nonrecurring costs, there should be ample evidence over the previous fiscal year to illustrate a much stronger return and EPS for this company. This EPS growth has been extremely positive for this company, as the current P/E ratio of 24.31 and the more important forward P/E ratio of 19.12 are significantly below the industry?s trailing multiple average of 119 (Capital IQ).

While the forward ratio is still higher than industry giants Kimberly Clark or International Paper, there are other more substantial multiples and figures arguing for the case of Cenveo. One of these arguments can be identified after looking at the PEG ratio. Cenveo?s PEG multiple, using growth over the next five years, is substantially lower with a number of 1.28 when compared to Kimberly Clark?s 2.24 or International Paper?s 4.25. In addition Cenveo?s price to sales ratio, enterprise value to revenue ratio, and enterprise value to EBITDA ratio of 0.78, 1.28, and 11.61 respectively for the last twelve months are all lower, signifying value when compared to Kimberly Clark?s 1.89, 2.08, and 9.28 respective numbers. In addition, probably the best attribute for the suggestion of this company can be attested to the amazing ROE number. With a percentage return of close to 490%, it is clear Cenveo is taking advantage of the equity released in terms of helping its company which comes in part from a strong management team. When there are leaders such as Mr. Robert Burton (CEO) and Mr. Sean Sullivan (CFO), the potential for future growth looks favorable with a management team able to make competent decisions.

The ROE handily beats out all other competitors in the industry and most companies in general, and the management team also has a strong return on assets effectiveness of more than 7% which easily beats rivals found with International Paper and large cap stock UPM-Kymmene. Furthermore, Cenveo?s current ratio of 1.6 is also another positive indicator of success as the ratio beats out International Paper?s number of 1.35 and UPM-Kymmene?s respective 1.48. The EBITDA, a cash proxy, for Cenveo also looks quite strong near 170 million over the past twelve months, and while operating cash flow is in the red, the nonrecurring expenses play a large role with such number as more emphasis should be played on the leveraged free cash flow growth amounting to near 40 million dollars over the past twelve months. Thus, after examining the fundamentals, while it may be true that there are other competitors who may have more value attached to their respective price, with a strong management team as illustrated with Cenveo, there is absolutely a strong possibility of upside for this company, regardless the current share price.

However, after looking at the share price, there still may be some negative sentiment when looking at a number near its 52 week high. However, the company, near its 50 and 100 day simple moving average coupled with strong growth to follow the S&P 500 relative to its beta last year allows for strong conviction of a share price rallying in 2007 as history points out a positive year for broad based indexes. Therefore, with a strong profile engaged with a terrific management team allowing for strong fundamentals to occur, I would highly advise researching this company a bit more and making a move to purchase a few shares in the process.

Dennis Biray presents advice on all kinds of topics ranging from finance and investing to fitness to sports. For more information email him at dbiray@gmail.com, or to view other articles written by him visit http://www.biraynetworks.co.nr