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Is Berry Global Undervalued After Record Earnings?

GuruFocus.com

Shares of global packaging company Berry Global Group Inc. (NYSE:BERY) gained nearly 5% on Friday to trade at about $49.78 following the release of fiscal third-quarter earnings results. The company beat analysts' estimates of $1.18 per share with earnings of $1.52 per share. This was also a significant improvement from the earnings per share of 90 cents reported the prior-year quarter.


Berry Global is one of the companies that has benefited significantly from the Covid-19 pandemic. Its international packaging business posted a huge rise in sales, which management attributed to coronavirus-related benefits and the acquisition of U.K.-based RPC Group. The Indiana-based company also saw a significant rise in volume sales in its health, hygiene and specialties segment, which further strengthened the bottom line.

Highlights from recent quarter

In the company's most recent quarter, Berry Global posted a top line of $2.9 billion, up 50% from the same period last year. Operating income increased to $347 million, representing a year-over-year change of 61%. Adjusted earnings per diluted share were up 69% to $1.52.

Berry Global CEO and Chairman Tom Salmon said in a statement that through the relentless effort and dedication of its employees accompanied by "our diverse, stable portfolio, we were able to deliver record earnings for any quarter in the Company's history."

The company's cash flow from operations topped $1.45 billion, while the provision for free cash flows was reported at $830 million.

Sales of $2.9 billion was also another record, but this time specifically for the June quarter.

Berry Global recorded a 14% growth in sales from its health, hygiene and specialties segment, which the management attributed to recent investments, a targeted approach to the market and coronaviurs-related benefits tied to the health care portfolio.

Valuation

From a valuation perspective, shares of Berry Global appear to be competitively valued compared to its close peers in the containers and paper packaging market. The company trades at price-earnings ratio of about 16.21 while Crown Holdings Inc. (NYSE:CCK) and Ball Corp. (NYSE:BLL) are valued at 19.71 and 52.35, respectively.

Looking forward 12 months from now, shares of Berry Global trade at a forward price-earnings ratio of 9.51 compared to Crown Holdings' 13.55 and Ball's 27.70. However, with no earnings estimate for the next five years, it might be wise to look at the opportunity that Berry Global provides in the short term.

Conclusion

In summary, shares of Berry Global appear competitively valued in the short term, but there are no figures to look further in the future. This implies that investors may want to consider it for short-term opportunities despite Friday's huge earnings surprise.

Disclosure: No positions in the stocks mentioned.

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This article first appeared on GuruFocus.