Owens-Illinois, Inc. OI continues to benefit from growing preference for glass packaging, ongoing successful joint venture, acquisitions, and continued focus on cost reduction and acquisitions.
Currently, the manufacturer of glass containers carries a Zacks Rank #3 (Hold). Here's why investors should hold on to the stock at present.
Shares of the company have gained 12.7% over the past six months, against the industry’s decline of 1.2%.
Return on Equity (ROE)
Owens-Illinois’ trailing 12-month ROE supports its growth potential. The company’s ROE of 44.2% compares favorably with the industry’s average ROE of 41.8%, reflecting that it is more efficient in utilizing shareholders’ funds.
Value Growth Momentum (VGM) Score
The company currently has a VGM score of A. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of A along with some other key metrics makes the company a solid choice for investors.
Valuation Looks Rational
Owens-Illinois is currently trading at a trailing 12-months P/E multiple of 7.2 while the industry’s average is pegged at 7.9. Consequently, the company is undervalued in comparison with its industry peers.
Positive Earnings Surprise History
The company has an impressive earnings history having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, recording average beat of 0.31%.
Backed by favorable market trends, growth opportunities, and continued focus on structural cost reductions, the company anticipates higher earnings and cash flow generation in 2019. Owens-Illinois guides adjusted earnings to be around $3.00 per share, projecting year-over-year growth of 10% from $2.72 per share earned in 2018.
Positive Growth Projections
For 2019, the Zacks Consensus Estimate is currently pegged at $2.94, reflecting year-over-year growth of 8.1%. The estimate for 2020 is $3.17, projecting year-over-year growth of 7.9%.
The company has a long-term estimated earnings growth rate of 7.39%.
Growth Drivers in Place
Owens-Illinois’ joint venture with Constellation Brands, Inc. STZ has exceeded expectations so far — productivity has been higher than anticipated, capital costs were considerably lesser than initially expected and earnings have been growing every year. Owens-Illinois has built four furnaces at the joint venture in just four years and is currently building a fifth furnace that is expected to come on line by 2019-end. The fifth furnace will help cater to the rising demand from Constellation`s adjacent brewery. With the installation of the fifth furnace, the Nava plant will be the largest, most modern glass container factory globally.
The glass container market in Europe is healthy and continues to grow at about 1% per year. The company’s efforts to add capacity in Europe, supply chain performance, focus on growing strategic relationships and footprint optimization poises it well for improving volumes and expanding margins in the region.
Considering the rising market demand in Mexico and Brazil, the company is adding capacity. In the United States, demand for glass is improving on the back of favorable consumer trends and increased preference of customers for glass packaging. Non-beer categories in the United States continue to grow at low-single digits over time. Consequently, the company has been focusing on these categories by improving customer relationships, commercial and design capabilities, and converting almost 20% of its beer capacity into flexible capacity to meet non-beer customer demand. Overall, Americas are expected to generate higher sales, profit and margin in the coming year.
In Asia Pacific, growing demand in emerging markets will drive volumes. Owens-Illinois has completed its asset improvements program in the region, and expects higher volumes and lower manufacturing expense to drive margins higher going forward. Further, there exists opportunities to grow premium products in Australia and New Zealand markets.
Investors might want to hold on to the stock at present as it has ample positive prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the sector include iRobot Corporation IRBT and Brady Corporation BRC. While iRobot sports a Zacks Rank #1 (Strong Buy), Brady Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Brady has estimated long-term earnings growth rate of 7.50%. The stock has gained 11% over the past six months.
Brady Corporation has estimated long-term earnings growth rate of 20.50%. Its shares have gone up 13% over the past six months.
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