Here's Why You Should Avoid Berry Global (BERY) Stock Now
We have issued an updated research report on Berry Global Group, Inc. BERY on Sep 24.
This packaging company currently carries a Zacks Rank #4 (Sell). Its market capitalization is approximately $6.6 billion.
Let’s delve deeper and discuss what led to the company’s poor investment appeal.
Share Price Performances, Earnings Estimate Revision: Market sentiments seem to be against Berry Global as evident from roughly 7.1% decline in the company’s share price in the past six months. This stock’s six-month performance is below 5.9% growth recorded by the industry and 4.6% increase recorded by the Zacks Industrial Products sector.
The company’s earnings estimates for fiscal 2018 (ending September 2018) and fiscal 2019 (ending September 2019) have been decreased in the past 60 days. The stock’s Zacks Consensus Estimate is pegged at $3.36 for fiscal 2018 and $3.80 for fiscal 2019, representing declines of 7.2% and 4.8% from their respective 60-day-ago tallies.
Berry Global Group, Inc. Price and Consensus
Berry Global Group, Inc. Price and Consensus | Berry Global Group, Inc. Quote
Raw Material Costs: Berry Global’s cost of sales grew 13.3% year over year in the first three quarters of fiscal 2018 — including the impact of 11.3% growth registered in the fiscal third quarter. Rise in costs resulted in 80 basis points year-over-year fall in adjusted operating margin.
It’s worth noting here that the inflation in raw material costs, as well as higher transportation and manufacturing expenses, was behind escalated costs in the fiscal third quarter. Moreover, margins of Consumer Packaging, and Health, Hygiene and Specialties segments were hurt due to increased costs of one of the raw materials — polypropylene resin. We believe that such inflationary pressures, if persist, are likely to continue to weigh on margins and might hurt profitability.
Long-Term Debt: Berry Global’s long-term debts in the last five fiscals (2013-2017) increased 7.7% (CAGR). The trajectory has continued in fiscal 2018 as well. At the end of third-quarter fiscal 2018, the company’s long-term debt balance stood at $5.9 billion, reflecting increase of 5.4% from fiscal 2017 end.
We believe that a highly leveraged balance sheet can inflate the company’s financial obligations and hurt profitability.
Buyout-Related Risks: Over time, Berry Global has easily penetrated unexplored markets, added products to the portfolio and expanded geographical footprints, with the help of acquired assets. However, these buyouts have exposed the company to several headwinds. Successful integration remains a major hurdle as any failure can adversely impact the company. Moreover, funds raised through borrowings to fund acquisitions can inflate debt levels and prove detrimental to financial performance. Very frequent buyouts are, in some way, distraction to management and might lead to unfavorable impact on organic growth.
Stocks to Consider
Some better-ranked stocks in the sector are Colfax Corporation CFX, DXP Enterprises, Inc. DXPE and Barnes Group Inc. B. While both Colfax and DXP Enterprises sport a Zacks Rank #1 (Strong Buy), Barnes Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next. The average positive earnings surprise for the last four quarters was 7.91% for Colfax, 101.32% for DXP enterprises and 6.88% for Barnes Group.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Berry Global Group, Inc. (BERY) : Free Stock Analysis Report
Colfax Corporation (CFX) : Free Stock Analysis Report
DXP Enterprises, Inc. (DXPE) : Free Stock Analysis Report
Barnes Group, Inc. (B) : Free Stock Analysis Report
To read this article on Zacks.com click here.
