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Here's Why You Should Hold Silgan (SLGN) in Your Portfolio

·5 min read

Silgan Holdings Inc. SLGN is benefiting from the surge in demand for vital products like food, beverage and consumer health and personal care products amid the coronavirus crisis. Apart from this, the company is also witnessing strong volume gains even in regions where stay-at-home requirements have been eased. The ongoing momentum in demand and expected benefits from its cost reduction actions will boost results this year. The acquisition of the dispensing business of the Albéa Group is a strategic fit for the closures business and is expected to strengthen its position in the dispensing markets and lead to cost synergies.

Silgan currently has a Zacks Rank #3 (Hold) and a VGM Score of B. 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Solid Q1 Results: Silgan’s first-quarter 2021 adjusted earnings improved 31.5% year over year to 75 cents per share. Total revenues of $1,238 million were up 20.2% year over year on higher sales across its business segments. The top and bottom lines both surpassed the respective Zacks Consensus Estimate.

Upbeat Guidance: Silgan has been witnessing strong volumes in all of its segments on demand for vital products like food, beverage and consumer health and personal care products triggered by the COVID-19 pandemic. Backed by the momentum in demand for shelf-stable metal food packaging and health and hygiene products, Silgan anticipates adjusted earnings per share in the range of $3.30 to $3.45 in 2021. The mid-point of the range indicates an improvement of 10.3% over the record earnings per share of $3.06 in 2020. The company’s focus on cost reduction will also continue to aid margins.

Positive Growth Expectations: The Zacks Consensus Estimate for the company’s earnings per share for 2021 is currently pegged at $3.38, indicating year-over-year growth of 10.5%. The same for 2022 stands at $3.54, which suggests year-over-year improvement of 4.7%.

Positive Earnings Surprise History: Silgan has a trailing four-quarter earnings surprise of 15.8%, on average.

Growth Drivers in Place

In June 2020, Silgan closed the acquisition of Albea’s dispensing business. It is a strategic fit for the Dispensing and Specialty Closures business. This buyout is likely to strengthen its position in the dispensing markets. The company expects to realize operational cost synergies of $20 million, on an annual run rate basis. These synergies would be achieved primarily through reductions in general and administrative expenses, procurement savings and manufacturing efficiencies. The buyout is anticipated to become more accretive as synergies are phased in over the next 18 months, and customer buying patterns for the beauty and personal care markets return to more normal levels.

The metal container segment’s income in 2021 is likely to modestly improve year over year on the current solid demand and Silgan’s manufacturing-improvement efforts. The Dispensing and Specialty Closures segment is gaining from strength in the personal care, hygiene and health care markets, and an early recovery in the fragrance market. Segment income is expected to increase significantly in 2021 compared with the prior year primarily owing to the inclusion of the dispensing operations of Albéa. New business gains and improved manufacturing efficiencies will also drive the segment’s income. The Custom Containers segment continues to benefit from favorable product mix, anticipated higher volumes backed by new business awards and manufacturing efficiencies.

Price Performance

The stock has gained 12.1% year to date against the industry’s decline of 7.4%.

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Zacks Investment Research

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Stocks to Consider

Some better-ranked stocks in the industrial products sector are Tennant Company TNC, Encore Wire Corporation WIRE and Arconic Corporation ARNC. All of these stocks sport a Zacks Rank #1, at present.

Tennant has an expected earnings growth rate of 49.5% for the current fiscal year. The company’s shares have gained around 18% year to date.

Encore Wire has an estimated earnings growth rate of 49.5% for the current fiscal year. Year to date, the company’s shares have rallied nearly 36%.

Arconic has a projected earnings growth rate of 447% for the current fiscal year. The stock has appreciated around 21% so far this year.

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Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report

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Arconic Corporation (ARNC) : Free Stock Analysis Report

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