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Why Hold Strategy is Apt for Silgan (SLGN) Stock Right Now

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Silgan Holdings Inc. (SLGN - Free Report) is benefiting from the demand recovery in beverage, beauty and fragrance markets. Apart from this, anticipated benefits from the company’s cost-reduction actions will aid its performance in the current year. The acquisition of the dispensing business of the Albéa Group is a strategic fit for the closures business, and is likely to strengthen its position in the dispensing markets and lead to cost synergies.

Silgan 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings & Sales Top Estimates in Q2: Silgan’s second-quarter 2021 adjusted earnings came in at 85 cents per share, beating the Zacks Consensus Estimate of 83 cents. The bottom line remained flat year over year and came in at the higher end of the company’s guidance of 75-85 cents. Revenues of $1,349 million surpassed the consensus mark of $1,302 million and improved 15% year over year on higher sales across its segments.

Upbeat Guidance: Silgan estimates adjusted earnings per share in the range of $3.30 to $3.45 for 2021. The mid-point of the guided range indicates a 10.3% improvement over the record earnings per share of $3.06 registered in 2020. This will be aided by recovery in the beverage, beauty and fragrance markets, and the company’s ongoing focus on cost reduction.

Positive Growth Expectations: The Zacks Consensus Estimate for the company’s earnings per share for 2021 is currently pegged at $3.38, indicating year-over-year growth of 10.5%. The same for 2022 stands at $3.54, which suggests year-over-year improvement of 4.7%.

Positive Earnings Surprise History: Silgan has a trailing four-quarter earnings surprise of 15.8%, on average.

Growth Drivers in Place

Silgan’s acquisition of Albea’s dispensing business is a strategic fit for the Dispensing and Specialty 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. These synergies would be achieved primarily through reductions in general and administrative expenses, procurement savings and manufacturing efficiencies. The buyout is anticipated to become more accretive as customer buying patterns for the beauty and personal care markets return to more normal levels. Silgan also acquired Cobra Plastics, Inc., in a bid to expand closures franchise into new markets.

The metal container segment’s income in 2021 is likely to modestly improve year over year on the solid demand and Silgan’s manufacturing-improvement efforts. The Dispensing and Specialty Closures segment’s income is expected to increase significantly in 2021 compared with the prior year, primarily owing to the inclusion of the dispensing operations of Albéa. New business gains and improved manufacturing efficiencies will also drive the segment’s income. The Custom Containers segment continues to benefit from favorable product mix, anticipated higher volumes backed by new business awards, and manufacturing efficiencies.

Meanwhile, raw-material cost inflation, labor shortage and supply-chain constraints might impact Silgan’s bottom-line results in the quarter.

Price Performance

Silgan’s shares have gained 16.1% so far this year, outperforming the industry’s growth of 6.3%.

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Stocks to Consider

Better-ranked stocks in the Industrial Products sector include Encore Wire Corporation (WIRE - Free Report) , Lincoln Electric Holdings, Inc. (LECO - Free Report) and Lindsay Corporation (LNN - Free Report) . While Encore Wire sports a Zacks Rank #1, Lincoln Electric and Lindsay carry a Zacks Rank #2, at present.

Encore Wire has a projected earnings growth rate of 332.6% for fiscal 2021. So far this year, the company’s shares have gained 45%.

Lincoln Electric has an expected earnings growth rate of 45.1% for 2021. The stock has appreciated 22%, year to date.

Lindsay has an estimated earnings growth rate of 17.4% for fiscal 2021. The company’s shares have gained 35%, so far this year.