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Why Hold Strategy is Apt for Ball Corp (BLL) Stock Right Now

Zacks Equity Research

Ball Corporation BLL is poised to gain from its encouraging outlook for the current year, strong demand for aluminum packaging, solid backlog in the aerospace segment, new products and focus on cost-cutting actions. However, headwinds related to foreign-currency exchange, higher freight rates and tight metal supply in the United States remain concerns.

Ball Corporation currently carries a Zacks Rank #3 (Hold) and has 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.

Below, we briefly discuss the company’s growth drivers and possible headwinds.
Factors Favoring Ball Corporation
Price Performance

Ball Corporation’s shares have outperformed the industry over the past year. The stock has surged around 63.8%, while the industry grew 44.3%.

Positive Growth Projections

The Zacks Consensus Estimate for the company’s current-year earnings is currently pegged at $2.59, reflecting year-over-year growth of 17.7%. For 2020, the Zacks Consensus Estimate for earnings is pegged at $3.06, indicating year-over-year growth of 18.4%. Also, the company has an estimated long-term earnings growth rate of 5.5%.

Upbeat Outlook

Ball Corporation expects to achieve EBITDA of $2 billion and free cash flow of more than $1 billion in 2019, backed by continued solid demand for aluminum packaging and a robust aerospace backlog. The Aerospace business is poised to witness revenue growth of nearly 25% this year. With contracted backlog levels and won-not-booked backlog of $4.8 billion at the end of the second quarter, the future looks bright for the aerospace unit. Also, the company anticipates earnings per share to be up 10-15% in 2019 and beyond.
Growth Drivers in Place

Ball Corporation’s North and Central American segment is likely to benefit from fixed cost savings, volume growth, improved aluminum can-sheet quality and reduce start-up costs in 2019 and beyond. Solid industry beverage-can demand in South America, particularly in Brazil, will considerably aid the South America segment’s growth in the current year. Furthermore, the Europe segment is well poised to gain from customers’ growing preference for cans and increased production in new lines in the company’s existing facilities. Notably, overall consumption of alcohol and non-alcoholic products are on the rise.

Recently, the company rolled out the first-ever infinitely recyclable aluminum cups in the United States, in response to consumers’ demand for sustainable packaging. The latest product aims to replace plastic cups with aluminum cups. Further, the new solution positions the company well to expand its product line over the next several years.

Overall global beverage can demand continues to grow as customers are now preferring cans over glass and plastic. The company remains poised to capitalize on this demand by investing in capacity and products. Ball Corporation expects capital spending to be $600 million in the ongoing year. The company continues to execute its strategies of achieving better value for standard products and higher growth for specialty products. The company’s focus on pursuing cost-out programs, completing growth-capital projects and commercializing on the inherent sustainability attributes of metal packaging will bear fruit in the days ahead.

Headwinds to Counter

Headwinds related to currency exchange, higher freight rates and U.S. aluminum scrap are likely to affect Ball Corporation’s results. The North and Central America segment remains challenged with the U.S. aluminum scrap headwinds and sequential project startup cost. These start-up costs will remain a concern in 2019. Additionally, conflicts in the Middle East are likely to negatively impact volumes in the region.

Bottom Line

Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are John Bean Technologies Corporation JBT, AGCO Corp. AGCO and UFP Technologies, Inc. UFPT. While John Bean Technologies and AGCO Corp sports a Zacks Rank #1, UFP Technologies carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

John Bean Technologies has an estimated earnings growth rate of 13.08% for 2019. The company’s shares have surged 38.5% year to date.

AGCO Corp. has a projected earnings growth rate of 11.2% for the current year. The stock has gained 35.9% so far this year.

UFP Technologies has an expected earnings growth rate of 8.10% for the ongoing year. The stock has jumped 28.5% in the year-to-date period.

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