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Schawk, Inc. (SGK), RR Donnelley & Sons Co (RRD): This Stock Makes Customers’ Brands Stick

RR Donnelley & Sons Co (NASDAQ:RRD), a global provider of integrated communication services, boasts of diversified revenue streams, with no single industry accounting for more than one fifth of its sales turnover. In contrast, Schawk, Inc. (NYSE:SGK) generates four fifths of its revenue from clients in the consumer packaged goods & private label industry. RR Donnelley & Sons Co (NASDAQ:RRD) is also North America’s largest printer, which puts it in a good position to benefit from industry trends such as smaller players exiting, customer demand for integrated solutions, and growth in digital print & print services. It has maintained its dividend per share of $1.04 for the past nine years and currently sports a forward dividend yield of 8.20%.

Schawk, Inc. (NYSE:SGK) has a forward dividend yield of 2.60% and currently trades at 9.8 times forward P/E. In comparison, Matthews International and R.R. Donnelley & Sons are valued by the market at 13.9 and 7.7 times forward P/E, respectively. While RR Donnelley & Sons Co (NASDAQ:RRD) might seem undervalued based on forward P/E and dividend yield, it is highly geared with $3.5 billion of debt on its books compared to its market capitalization of $2.3 billion.

Conclusion

Schawk’s graphic services draw consumers to their customers’ products and they cost only a fraction of the total advertising, promotion, and packaging costs for consumer products. This represents a strong economic moat for Schawk. A 2.60% dividend yield is the icing on the cake for an undervalued stock like Schawk with a forward P/E below 10.

The article This Stock Makes Customers’ Brands Stick originally appeared on Fool.com and is written by Mark Lin.

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