O-I Glass, Inc. OI continues to benefit from the growing preference for glass packaging, focus on innovation, capacity expansions, joint-venture deals and acquisitions. Further, turnaround initiatives and cost-control measures will aid the company.
Currently, this manufacturer of glass containers carries a Zacks Rank #3 (Hold) and has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities.
Factors Favoring O-I Glass
Shares of the company have appreciated 84.3% over the past three months, outperforming the industry’s growth of 69.4%.
Return on Equity (ROE)
O-I Glass’ trailing 12-month ROE supports its growth potential. The company’s ROE of 81.6% compares favorably with the industry’s average ROE of 64.7%, reflecting that it is more efficient in utilizing shareholders’ funds.
Valuation Looks Rational
O-I Glass is currently trading at a trailing 12-month P/E multiple of 7.8, while the industry’s average is pegged at 8.6. Consequently, the company is undervalued compared with its industry peers.
Growth Drivers in Place
O-I Glass’ performance improved in June on the reopening of markets and demand pick-up after being affected by the pandemic in April and May. The company anticipates sales volumes in the current year to be down 4-7%, year on year. This reflects a more favorable outlook compared with the previous guidance of a 5-10% decline. Further, O-I Glass is gaining from the elevated off-premise sales owing to a sharp drop in demand at bars and restaurants. The company expects to benefit from glass demand and improved consumption trends as well. O-I Glass focuses on improving its operating performance through several turnaround initiatives, enhanced factory performance and cost reduction. These factors will boost its current year’s results.
However, the continued decline in beer consumption in the domestic market since 2018 is a major headwind. The company has been mitigating the impact of the persistent decline in mega beer in North America by positioning itself to benefit from the rapidly growing U.S. beer import market. It intends to achieve this through its joint venture (JV) with Constellation Brands, Inc. STZ and long-term sales contracts in Mexico.
O-I Glass is driving innovation in the glass segment, evident from the development of MAGMA, a revolutionary breakthrough initiative to reimagine glassmaking with transformational technology and new processes. Additionally, it launched O-I: Expressions, a direct-to-glass digital printing technology that will enable brands to create highly-personalized and customized glass packaging at an affordable value. These innovations will open up opportunities in the near term.
The company’s top priority remains investments in the business. It intends to achieve this by investing in JVs and incremental capacity, and through bolt-on acquisitions in emerging geographies, while delivering a favorable return on invested capital.
The company acquired a 49.7% interest in EmpresasComegua S.A with two glass manufacturing facilities in Costa Rica and Guatemala. The buyout has aided the company to expand its presence into new and growing glass markets in Central America and the Caribbean. The company’s Nueva Fanal acquisition supports its growing premium beer category in Mexico. The buyout, along with the previous acquisition of Vitro's food and beverage business, solidifies O-I Glass’ position in the attractive and growing glass segment of the packaging market in Mexico and Central America.
Few Headwinds to Counter
The resurgence of coronavirus cases might impact the economic recovery unfavorably. Hence, uncertainty related to the severity of the pandemic and governmental authorities’ actions to contain the virus might affect the O-I Glass’ current-year performance. It expects third-quarter sales volume to be approximately flat to slightly down compared with the prior-year period and production levels will likely be down 7-10% year over year.
Investors might want to hold on to the stock, at present, as it has ample positive prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector include Silgan Holdings, Inc. SLGN and IIVI Incorporated IIVI, both sporting a Zacks Rank #1, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silgan has a projected earnings growth rate of 28.7% for the current year. The company’s shares have gained 13% in the past three months.
IIVI has an estimated earnings growth rate of 29% for the ongoing year. The company’s shares have rallied 46% in three months’ time.
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Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report
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