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Greif (GEF) Up 56% in 6 Months: What's Driving the Stock?

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Shares of Greif Inc. (GEF - Free Report) have gained 55.9% over the past six months. The leading global producer of industrial packaging products has also outperformed its industry and the S&P 500’s growth of 20.1% and 17.1%, respectively, over the same time frame. Higher demand in food, pharmaceutical and household goods industries due to the COVID-19 pandemic, and forecast-topping first-quarter fiscal 2021 results have contributed to the rally.

The company has a market capitalization of $2.7 billion. The company has a trailing four-quarter earnings surprise of 9.9%, on average.

Greif’s current-year earnings estimates have been revised upward by 3% to $3.61 per share over the past 90 days. The same for 2021 has moved north by 4% to $4.06 per share.

Driving Factors

Q1 Earnings Beat: Greif reported first-quarter fiscal 2021 adjusted earnings per share of 61 cents, which surpassed the Zacks Consensus Estimate of 53 cents. It was also higher than the company’s guidance of 48 cents to 58 cents. Sales of $1,147 million also beat the Zacks Consensus Estimate of $1,096 million.

Upbeat Q2 Guidance:  Greif anticipates second-quarter fiscal 2021 adjusted earnings per share between 96 cents and $1.06. The mid-point of the range indicates year-over-year growth of 6%.

Pandemic-Induced Demand & Improving End Markets Bode Well: Greif continues to witness increase in demand in food, pharmaceutical and household goods industries owing to the COVID-19 pandemic. This is likely to continue until the situation stabilizes. The company is seeing broad-based improvement in several of its key end markets. The industrial sector gas been witnessing a pickup in activity over the past few months on gradual resumption of the global economic activities and reopening of businesses. Sales to lubricant and bulk chemical customers have been high courtesy of enhanced auto demand and generally improving industrial conditions worldwide. Tanks and coating sales were up due to better auto and construction demand, while sales to pharma and personal care markets remain robust.

Pricing Actions, Cost Reduction to Drive Margins: In Paper Packaging segment, the company recently announced price increases for containerboard and uncoated recycled boxboard grades in response to strong demand and to mitigate the impact of cost inflation. It will continue to benefit from focus on operational execution, capital discipline, and a strong and diverse product portfolio. Greif will continue to focus on its restructuring activities in 2021, which includes optimizing and integrating operations in the Paper Packaging & Services segment, rationalizing operations and closing underperforming assets in the Global Industrial Packaging segment. The company continues to optimize portfolio by closing or divesting underperforming assets.

Expected Synergies From Acquisition: In February 2019, the company completed the acquisition of Caraustar Industries, Inc. and is currently integrating its operations. The buyout strengthened Greif’s leadership in industrial packaging and significantly bolstered its margins, free cash flow and profitability. Since the announcement of the buyout, the company realized around $63 million in synergies. Greif continues to anticipate run rate synergies to at least $70 million by 2022.

Zacks Rank & Stocks to Consider

Greif currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Deere & Company (DE - Free Report) , AGCO Corporation (AGCO - Free Report) and Avery Dennison Corporation (AVY - Free Report) . While Deere flaunts a Zacks Rank #1 (Strong Buy), AGCO Corporation and Avery Dennison carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company has a projected earnings growth rate of 38.8% for fiscal 2021. Over the past year, the company’s shares have appreciated 63% over the past six months.

AGCO Corporation has an estimated earnings growth rate of 42.7% for the ongoing year. The company’s shares have soared 74% in the past six months.

Avery Dennison has an expected earnings growth rate of 13.7% for 2021. Over the past month, the stock has climbed 52%.

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