On May 20, we issued an updated research report on Silgan Holdings Inc. SLGN. The company continues to benefit from demand for vital products like food, beverage, and consumer health and personal care products amid the coronavirus crisis. Focus on cost control will help sustain margins. Acquisitions will also drive growth.
The company’s earnings have outpaced the Zacks Consensus Estimate in two of the last four quarters, while the same were in line in the other two. The company has a trailing four-quarter positive earnings surprise of 4.55%, on average.
Solid Q2 Results
Silgan Holdings reported first-quarter 2020 adjusted earnings of 57 cents per share, which beat the Zacks Consensus Estimate of 49 cents. Further, the figure increased 24% year over year. The company witnessed record volumes across all business segments triggered by spike in consumer demand in response to the coronavirus crisis.
Strong Demand in Times of COVID-19
Silgan Holdings’ business has been declared ‘essential’ in all the geographies in which it operates. Considering higher demand for vital products like food, beverage and consumer health and personal care products amid the crisis, the company has been witnessing strong volumes in all of its segments. Notably, all 100 of its global production facilities have remained open, with many setting production records. Silgan Holdings’ order books are full, which bodes well for second-quarter performance. The company is likely to gain from the ongoing momentum in demand for food and consumer health products, such as soap and sanitizer bottles and dispensing systems.
Hiked Guidance – A Rarity Nowadays
Backed by impressive first-quarter 2020 performance and expectations of continued strong demand, the company has raised earnings guidance for the second quarter and the full year. For the second quarter, Silgan expects adjusted earnings per share (EPS) in the range of 55-70 cents. The mid-point of the range indicates year-over-year growth of 13.6%. For 2020, adjusted EPS guidance is pegged at $2.30-$2.50. The mid-point of the range indicates an increase of 11% from earnings of $2.16 reported in 2019.
The Zacks Consensus Estimate for the company’s 2020 earnings is currently pegged at $2.41, which indicates an 11.6% year-over-year growth.
Acquisitions: A Key Catalyst
Since its inception, Silgan Holdings has acquired 36 businesses. Backed by acquisitions and organic growth, the company has increased its share in the metal food container market in the United States from 10% in 1987 to slightly more than half of the market in 2019.
The company has become a leading global manufacturer of closures for food, beverage, health care, garden, personal care, home and beauty products through buyouts, with net sales of $1.41 billion in 2019. This marks a seven-fold increase since 2003. Silgan Holdings has also fortified its market position in the plastic container business since 1987, with net sales increasing sevenfold to $611 million in 2019.
Silgan Holdings proposed acquisition of Albea’s dispensing business; which is expected to close in second-quarter 2020, will be a strategic fit for the 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, within 18 months following the proposed acquisition. These synergies would be achieved primarily through reductions in general and administrative expenses, procurement savings and manufacturing efficiencies. Silgan expects this proposed acquisition to be accretive to earnings and free cash flow per share in 2020. Silgan Holdings recently acquired Cobra Plastics, Inc., to expand closures franchise into new markets.
Silgan’s shares have gained 8.3% in the past year compared with the industry’s growth of 3%.
Zacks Rank & Other Key Picks
Silgan Holdings currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the Industrial Products sector are IIVI Incorporated IIVI, Axon Enterprise, Inc AAXN and Broadwind Energy, Inc. BWEN. While IIVI Incorporated sports a Zacks Rank #1 (Strong Buy), Axon Enterprise and Broadwind Energy carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.
IIVI Incorporated has a trailing four-quarter positive earnings surprise of 52.1%, on average. The stock has appreciated 39% in a year’s time.
Axon Enterprise has a trailing four-quarter positive earnings surprise of 30.6%, on average. The company’s shares have increased 12% in the past year.
Broadwind Energy has a trailing four-quarter positive earnings surprise of 50%, on average. The company’s shares have gained 32% in the past year.
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