We have issued an updated research report on Berry Global Group, Inc. BERY on Jan 15.
This company currently carries a Zacks Rank #2 (Buy), marking a revision from its previous Zacks Rank #3 (Hold). Its market capitalization is approximately $6.6 billion and it has a favorable VGM Score of A.
Let’s delve deeper and discuss why investors should consider adding Berry Global’s stock to their portfolio.
Factors Favoring Berry Global
Share Price Performance & Earnings Estimates: Impressive financial performance in the fourth quarter of fiscal 2018 (ended Sep 29, 2018) and optimism about its future prospects supported positive sentiment on Berry Global. It is worth noting here that the company’s share price has yielded 14.3% return against the industry’s 1.3% decline over the past three months.
Moreover, Berry Global’s earnings estimates for fiscal 2019 (ending September 2019) have been increased by four brokerage firms in the past 60 days and lowered by one. Likewise, earnings estimates for fiscal 2020 (ending September 2020) have been raised by three firms. Currently, the Zacks Consensus Estimate for earnings is pegged at $3.80 for fiscal 2019 and $4.17 for fiscal 2020, reflecting growth of 0.8% and 3.2% from the respective tallies 60 days ago. Further, these earnings estimates represent year-over-year growth of 12.8% for fiscal 2019 and 9.6% for fiscal 2020.
Berry Global Group, Inc. Price and Consensus
Berry Global Group, Inc. Price and Consensus | Berry Global Group, Inc. Quote
Over the next three to five years, the company’s earnings are projected to be up roughly 16.7% versus the industry’s increase of 9.9%.
Solid Business Opportunities: Berry Global primarily serves customers in the healthcare, beverage, food and personal care markets through its three operating segments — Engineered Materials; Health, Hygiene & Specialties; and Consumer Packaging. In the fourth quarter of fiscal 2018, revenues generated from the Consumer Packaging segment increased 8.2% year over year and that for the Health, Hygiene & Specialties segment expanded 21.5%. These positives were partially offset by slight 0.6% fall in revenues in the Engineered Materials segment.
As noted by Berry Global, the Consumer Packaging segment will gain from innovative products and packaging solutions in the quarters ahead. Conversely, investments in hygiene products in China will be advantageous for the Health, Hygiene & Specialties segment while solid product line, advanced technology, initiatives to expand businesses and rising importance of e-commerce business will benefit the Engineered Materials segment.
Currently, the Zacks Consensus Estimate for revenues is pegged at $568 million for the Consumer Packaging segment; $688 million for Health, Hygiene & Specialties; and $671 million for Engineered Materials for first-quarter fiscal 2019 (ended December 2018; results not yet released). These estimates reflect growth from year-ago revenues of $551 million for Consumer Packaging; $577 million for Health, Hygiene & Specialties; and $648 million for Engineered Materials.
Buyouts: Acquisitions can easily help penetrate unexplored markets, enhance product portfolio and expand geographical footprints. Berry Global acquired Clopay Plastic Products Company, Inc. in February 2018 and Laddawn, Inc. in August 2018. Clopay Plastic Products — part of the Health, Hygiene & Specialties segment — is predicted to yield $40 million in cost synergies. Half of the estimated benefits are predicted to be realized in fiscal 2019. Alternatively, Laddawn assets — part of the Engineered Materials segment — will boost Berry Global’s business in the core films market and generate roughly $5 million of cost synergies.
It is worth mentioning here that Berry Global used $702 million for making acquisitions (net of cash acquired) in fiscal 2018. Further, buyouts added 9% to sales growth in the fiscal year.
Capital-Allocation Strategy: Berry Global effectively uses its capital on organic growth, acquisitions, share buybacks, repaying debts and cost-reduction initiatives. In fiscal 2018, the company used $335 million for reducing its debts and $33 million for repurchasing shares. It is worth noting here that a share-buyback program of $500 million was announced in August 2018.
Berry Global anticipates cash flow from operations of $1,036 million in fiscal 2019, higher from $1,004 million recorded in fiscal 2018. We believe that improvement in cash flow generation will better support the company’s capital-allocation strategies going forward.
Other Stocks to Consider
Other top-ranked stocks in the same space are Bemis Company, Inc. BMS, Sealed Air Corporation SEE and UFP Technologies, Inc. UFPT. All these three stocks currently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past 60 days, earnings estimates for the three stocks improved for Sealed Air and UFP Technologies while remained unchanged for Bemis. Furthermore, in the last four quarters, these three companies delivered positive average earnings surprise of 4.17% for Bemis, 3.94% for Sealed Air and 56.74% for UFP Technologies.
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