Berry Global Group, Inc. BERY can be a good investment option in the container industries. The company has strong fundamentals and growth prospects, and its upwardly revised earnings estimates reflect bullish sentiments for the stock.
The company is based in Evansville, IN, and has a market capitalization of $6.5 billion. It belongs to the Zacks Containers – Paper and Packaging industry, which is part of the broader Zacks Industrial Products sector. The industry is among the top 35% (with rank of 87) of more than 250 Zacks industries.
The company presently has a Zacks Rank #2 (Buy).
Below we discussed why it is worth investing in Berry Global.
Top-Line Tailwinds: The company’s presence in multiple end markets — including food, healthcare, beverage, personal care and others — has been proving beneficial for it over time. Also, it has a solid customer base in multiple geographies, including Europe, Asia, South America and North America.
In the quarters ahead, strength in grocery, healthcare and hygiene end-markets along with recovering food services business is anticipated to aid Berry Global’s Consumer Packaging — North America segment. Also, solid demand for healthcare products, especially in the pandemic-stricken environment, will be boon for the Health, Hygiene & Specialties segment.
Berry Global predicts that its Consumer Packaging — North America segment’s volume will increase in low-single digits in the fourth quarter of fiscal 2020 (ending September 2020). The same metric will likely increase in low-double digits for the Health, Hygiene & Specialties segment in the quarter.
Buyouts: The company believes in enhancing product lines, expanding market share and boosting growth opportunities through acquisitions. It is worth mentioning here that acquisitions boosted Berry Global’s sales by $1,092 million in third-quarter fiscal 2020 (ended June 2020).
One of the most important buyouts of Berry Global is that of RPC Group Plc. The acquisition was completed in July 2019 and since then the acquired assets have been enhancing Berry Global’s presence in the plastic and recycled packaging industry. Worth mentioning is that Berry Global is progressing well on its integration plan for RPC Group.
The aforementioned buyout is predicted to generate cost synergies of $150 million annually — with $85 million expected in fiscal 2020 (ending September 2020).
Healthy Cash Position: The company has a sound cash position that might prove beneficial in dealing with financial obligations and funding growth activities. Its cash balance was $906 million at the end of third-quarter fiscal 2020, while available liquidity under its credit line was $850 million.
It is worth noting here that the company generated $446 million from its operating activities in the third quarter of fiscal 2020. After funding the capital expenditure, its free cash flow was $290 million, reflecting an increase of 113% from the year-ago quarter.
Apart from financing capital expenditure, Berry Global uses its capital for acquisitions, rewarding shareholders and debt repayments. In the first three quarters of fiscal 2020, the company repaid long-term debts of $1,859 million.
For fiscal 2020, it increased its cash projections with cash flow from operations of $1,450 million and free cash flow of $830 million. The previous projection was $1.4 billion for cash flow from operations and $800 million for free cash flow.
Price and Earnings Estimate Trend: Market sentiments have been positive for Berry Global for quite some time now. In the past three months, the company’s shares have gained 13.9% as compared with the industry’s growth of 10.3%.
Also, the company’s earnings estimates have been revised upward in the past 60 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $1.24 for the fourth quarter of fiscal 2020, up 7.8% from the 60-day-ago figure.
In addition, the consensus estimate for fiscal 2020 has been increased by 10.5% to $4.51 in the past 60 days, while that for fiscal 2021 (ending September 2021) has been raised by 9.8% to $5.15. It is worth noting here that seven upward revisions have been recorded for both fiscal 2020 and 2021 in the past 60 days. There was no downward revision for both years.
Berry Global Group, Inc. Price and Consensus
Berry Global Group, Inc. price-consensus-chart | Berry Global Group, Inc. Quote
Other Key Picks
Three other top-ranked stocks in the industry are Graphic Packaging Holding Company GPK, Sealed Air Corporation SEE and UFP Technologies, Inc. UFPT. All these companies currently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 60 days, earnings estimates for these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 36.84% for Graphic Packaging, 40.74% for Sealed Air and 55% for UFP Technologies.
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