Greif, Inc. GEF is poised to gain from focus on operational execution, cost reduction activities, and strong and diverse product portfolio. The Caraustar acquisition will also drive growth.
The company has a market capitalization of around $2.1 billion. Moreover, Greif outpaced the Zacks Consensus Estimate in three of the trailing four quarters by 5.65%, on average.
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 gained 20% in the past year against the industry’s decline of 16%.
Greif’s trailing 12-month EV/EBITDA ratio is 7.4, while the industry's average trailing 12-month EV/EBITDA is 24.7. Consequently, the stock is cheaper at this point based on the ratio.
The company has delivered an earnings growth rate of 15% over the past five years, ahead of the industry’s 8.9%. The momentum is likely to continue as evident from the company’s estimated long-term earnings growth rate of 8.7%.
Growth Drivers in Place
This February, Greif completed the acquisition of Caraustar Industries, Inc. for $1.8 billion, and is currently integrating its operations. The buyout has reinforced the company’s leadership in industrial packaging, and significantly bolstered margins, free cash flow and profitability. The percentage of the company’s sales from paper packaging has gone up to approximately half of total consolidated revenues.
Greif has raised anticipated run rate synergies to at least $70 million by 2022 from the prior estimate of $45 million. This will be backed by realized synergies of $24 million in fiscal 2019, footprint optimization, unlocking incremental sourcing/commercial opportunities and savings related to system implementations.
Greif will continue to benefit from focus on operational execution, capital discipline, and a strong and diverse product portfolio. The company continues to execute cost-reduction activities across portfolio to counter softer market demand.
Few Headwinds Ahead
The Rigid Industrial Packaging & Services segment continues to grapple with weak demand thanks to the declining industrial manufacturing environment. Volume weakness is pronounced in West and Central Europe, Asia Pacific region and the United States on account of trade uncertainty. Currency exchange rates are anticipated to remain volatile. This is likely to remain a concern for the Rigid Industrial Packaging & Services business segment in fiscal 2020 as well. In the Flexible Products & Services segment, continued weak demand in Western Europe remains a concern.
Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are CIRCOR International, Inc. CIR, Tennant Company TNC and Hickok Inc. CRAWA. All of these stocks sport a Zacks Rank #1, at present. You can see the complete list of today's Zacks #1 Rank stocks here.
CIRCOR International has an expected earnings growth rate of 7.1% for the current year. The stock has appreciated 116% over the past year.
Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 42% over the past year.
Hickok has an estimated earnings growth rate of 40% for the ongoing year. In a year’s time, the company’s shares have gained 88%.
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