Greif, Inc. GEF is poised to gain from the Caraustar acquisition, focus on operational execution, as well its strong and diverse product portfolio. However, lower volumes in the Rigid Industrial Packaging & Services segment due to trade uncertainty as well as higher debt levels are near-term concerns.
The company has a market capitalization of around $1.6 billion. The stock has an estimated long-term earnings growth rate of 8.6%. Also, Greif outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 0.60%
Below, we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Greif
Favorable Zacks Rank & VGM Score
At present, Greif carries a Zacks Rank #3 (Hold). It has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.
Shares of the company have outperformed the industry, over the past three months. The stock has gained around 4.1% as against the 36.6% loss recorded by the industry during the same time frame.
Positive Growth Projections
The Zacks Consensus Estimate for current-fiscal earnings is pegged at $3.81, reflecting estimated year-over-year growth of 7.9%. The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at $4.02, indicating estimated year-over-year increase of 5.5%.
Greif’s trailing 12-month EV/EBITDA ratio is 7.2, while the industry's average trailing 12-month EV/EBITDA is 32.3. Consequently, the stock is cheaper at this point based on the ratio.
Growth Drivers in Place
Greif’s current fiscal-year results will benefit from focus on operational execution, capital-expansion projects, strong and diverse product portfolio and the Caraustar acquisition. The company continues to execute cost-reduction activities across its portfolio to counter softer market demand.
This February, Greif completed the acquisition of Caraustar Industries, Inc. for $1.8 billion, and is currently integrating its operations. The buyout has strengthened the company’s leadership in industrial packaging, and significantly bolstered its margins, free cash flow and profitability. In the fiscal third quarter, the Paper Packaging segment’s results improved significantly owing to the Caraustar acquisition. In fact, Greif generates around half of its revenues from the United States. Furthermore, the percentage of the company’s sales from paper packaging will expand to approximately half of total consolidated revenues. The company has identified $15-million estimated run-rate synergies related to this acquisition and anticipates that it will be able to achieve at least $65 million by the end of fiscal 2022.
In order to support its deleveraging plan, investing in existing businesses through maintenance projects and organic-growth opportunities is Greif’s priority. Moreover, as a result of higher debt, following the Caraustar acquisition, the company will prioritize debt repayment till it achieves the targeted leverage ratio of 2-2.5x net debt to EBITDA.
Greif’s near-term performance will likely be marred by turbulent global macroeconomic conditions. Its Rigid Industrial Packaging segment continues to experience softer demand in the global market. Further, volume weakness in West and Central Europe, Asia Pacific region and the U.S. Gulf Coast on account of trade uncertainties and reduced chemical-import demand from China is likely to dampen the segment’s results. This apart, its performance will be adversely impacted by strengthening of the U.S. dollar.
Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.
Greif, Inc. Price and Consensus
Greif, Inc. price-consensus-chart | Greif, Inc. Quote
Stocks to Consider
A few better-ranked stocks in the Industrial Products sector are Zebra Technologies Corp. ZBRA, Avery Dennison Corp. AVY and Tetra Tech, Inc. TTEK. While Zebra Technologies currently sports a Zacks Rank #1 (Strong Buy), Avery Dennison and Tetra Tech carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zebra Technologies has a projected earnings growth rate of 16.71% for the current year. The stock has gained 22.7% in a year’s time.
Avery Dennison has an estimated earnings growth rate of 8.42% for 2019. The company’s shares have rallied 10.4% in the past year.
Tetra Tech has an expected earnings growth rate of 15.97% for the ongoing year. The stock has appreciated 18.3% over the past year.
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