Industry Reports

Deutsche Bank Reports Summaries

080201 Deutsche Bank Report – MWV’s 4Q in 200 Words

Deutsche Bank - Equity Research

MeadWestvaco {Ticker: MWV.N, Closing Price: USD 28.10, Target Price: USD 30.00, Recommendation: Hold}.

* Maintaining Hold but cutting price target

After disappointing 4Q earnings results, we are trimming our price target from $39 to $30. Our Hold rating is based on valuation discipline, as well as a balancing of strong cyclical conditions in most paperboard grades against weak organic trends in most converted packaging businesses.

* 4Q - they hit the number, but underlying fundamentals were weak

EPS net of special items was $0.42. DB estimate was @ $0.43, First Call consensus @ $0.42. Issues: input costs, lower mill volumes, 50+% drop in EBIT @ consumer solutions, and 25% drop @ specialty chems. 08Q1 outlook = flat y/y results, 07Q1 = ($0.02). FX helped. It's not supposed to work this way: getting hammered in "value- added" & not getting full leverage in commodities.

* Change in View?

Somewhat more cautious. Relative gains of last year have tapered off. Before MWV "leverages" positions or pursues "strategic" growth, it must simply perform financially. Cutting EPS estimates: '08 from $1.60 to $1.35, '09 from $1.85 to $1.70.

* Valuation/Risks

Our $30 target price is based on a modified DCF analysis, in which we assume a 9.0% cost of capital (4.5% risk free rate & beta of 1.5) and a 2% nominal growth rate. Downside risks include management execution, higher energy and raw material risks, and an adverse currency move. Upside risks include successful monetization of high- value timberlands, a resilient economy, and organic growth.