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Silgan (SLGN) Hits 52-Week High: What's Driving the Upside?

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Shares of Silgan Holdings Inc. (SLGN - Free Report) scaled a fresh 52-week high of $40.44 during the Oct 12 trading session, before retracting to close at $39.60. Forecast-topping second-quarter fiscal 2020 results, an improved outlook and robust demand for vital products like food, beverage, consumer health and personal care products amid the coronavirus pandemic are fueling the share price rally. The acquisition of Albea’s dispensing business, which is expected to strengthen the company’s position in the dispensing markets, has also been contributing to the rally.

The company has a market capitalization of $4.3 billion. Silgan has an expected long-term earnings per share growth rate of 5%. The company has a trailing four-quarter earnings surprise of 12.8%, on average.

Silgan’s current-year earnings estimates have been revised upward by 19% to $2.85 per share over the past 90 days. The same for 2021 has moved north by 14% to $2.91 per share. The Zacks Consensus Estimate for the company’s current year’s earnings suggests year-over-year growth of 32% and 2% for the next year.

Share Price Performance

The stock has gained 32.1% over the past year, outperforming the industry’s growth of 24.8%. The S&P 500 has rallied 19.4% in the same time frame.

Driving Factors

Q2 Earnings & Sales Beat: Silgan reported second-quarter 2020 adjusted earnings of 85 cents per share, which surpassed the Zacks Consensus Estimate of 63 cents. The figure also improved 54.5% year over year. Total revenues increased 7.6% year over year to $1,176.5 million on higher sales across its business segments. The top line beat the Zacks Consensus Estimate of $1,116 million.

Upbeat Guidance: Backed by its strong earnings performance in the first half of 2020, Silgan raised adjusted earnings per share guidance for 2020 to $2.70 and $2.85. The mid-point of the guidance indicates year-over-year growth of 28% from 2019.

Strong Demand Amid the Pandemic: Silgan has been witnessing solid volumes in all of its segments owing to surge in demand for vital products like food, beverage and consumer health and personal care products amid the coronavirus crisis. Notably, all of its global production facilities have remained open, and each of the businesses are operating at peak productivity levels. Demand levels remain high and the company is witnessing strong volume gains even in regions where stay-at-home requirements have been eased.

Acquisitions are Key to Growth: In June, Silgan closed the previously announced acquisition of Albea’s dispensing business. It is a strategic fit for the closures business and is likely to strengthen the company’s position in the dispensing markets. This buyout is anticipated to modestly boost Silgan’s earnings in 2020 and be more accretive as synergies are phased in over the next 18 months. The company also acquired Cobra Plastics, Inc. in February in a bid to expand closures franchise into new markets.

Cost Savings to Aid Margins: Silgan continually evaluates cost-reduction opportunities across each of its businesses, including rationalizations of existing facilities through plant closures and downsizings. It has a disciplined approach to identify opportunities that generate attractive cash returns. In sync with this, Silgan had announced an expanded footprint optimization plan in the metal container business. It is expected to reduce capacity by more than 0.5 billion units and continue to aid further cost reductions. Per the plan, the company intends to shut six plants, two of which were closed in 2019.

Zacks Rank & Other Stocks to Consider

Silgan currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks from the broader Industrial Products space are Worthington Industries, Inc. (WOR - Free Report) , Fortune Brands Home & Security, Inc. (FBHS - Free Report) and Plug Power, Inc. (PLUG - Free Report) . While Worthington sports a Zacks Rank #1, Fortune Brands and Plug Power carry a Zacks Rank #2.

Worthington has a projected earnings growth rate of 19% for the current year. The company’s shares have gained 37% in the past year.

Fortune Brands has an expected earnings growth rate of 6.9% for the ongoing year. The stock has appreciated 59% in the past year.

Plug Power has an expected earnings growth rate of 21% for fiscal 2020. In the past year, the company’s shares have soared 542%.

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