On Jan 4, we issued an updated research report on Crown Holdings, Inc. CCK. The company’s performance will be affected by damages caused by hurricanes, higher debt and raw-material inflation. Let’s illustrate these factors in detail.
Hurricanes to Dampen Crown Holdings’ Performance
Crown Holdings’ results in fourth-quarter 2018 will be bear the impact of damages caused by hurricanes Florence and Michael. The company experienced a week of downtime at two of its big facilities in South Carolina — one a beverage can plant and the other a plastic strapping facility.
Higher Debt to Hurt Margins
In third-quarter 2018, Crown Holdings’ interest expense was $105 million compared with $64 million in third-quarter 2017, primarily due to higher debt to finance the Signode acquisition. To fund this deal, Crown Holdings issued €500 million of 2.875% senior unsecured notes due 2026, €335 million of 2.250% senior unsecured notes due 2023, and $875 million of 4.750% senior unsecured notes due 2026. Thus, risk of rising interest rates remains a matter of concern as higher interest expenses will continue to thwart margins.
Raw Material Inflation Remains a Woe
Crown Holdings uses various raw materials, such as steel, aluminum, tin, water, natural gas, electricity and other processed energy, in its manufacturing operations. Cost of these raw materials has flared up due to the tariffs imposed in the United States. The company may not be able to pass through the rise in raw materials costs to its customers, without suffering losses in unit volume, revenues and operating income.
Share Price Performance
In the past year, Crown Holdings has underperformed the industry it belongs to. The stock has depreciated around 24%, performing worse than the industry’s 1% decline.
Zacks Rank & Key Picks
Crown Holdings carries a Zacks Rank #4 (Sell), currently.
A few better-ranked stocks in the same sector are Brady Corporation BRC, Lindsay Corporation LNN and Enersys ENS. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Brady has a long-term earnings growth rate of 7.5%. The company’s shares have gained 15% over the past year.
Lindsay has an estimated long-term growth rate of 18%. Its shares have rallied 7% in a year’s time.
Enersys has a projected long-term growth rate of 10%. Its shares have rallied 11% over the past year.
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