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O-I Glass (OI) Up 37% YTD: Will the Momentum Continue in 2023?

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Shares of O-I Glass (OI - Free Report) have rallied approximately 37% so far this year, faring way better than the industry’s 5% decline. The company has delivered year-over-year improvement in both its top and the bottom lines in all three fiscal quarters of the year due to solid demand for glass packaging and higher prices.  OI has an impressive trailing four-quarter earnings surprise of 15%, on average.

Upbeat Outlook

Backed by the upbeat results so far this year, O-I Glass expects adjusted earnings per share (EPS) between $2.20 and $2.25 for the full year 2022. The midpoint of the guidance indicates 22% growth from the adjusted EPS of $1.83 reported in 2021. Volumes are expected to be up 1% in 2022. For 2023, OI expects earnings to be in line, or likely up from 2022, benefiting from strong net price realization.

Higher selling prices have helped the company to negate the impact of cost inflation so far. Benefits from its margin expansion initiatives, through improving productivity, operating performance and cost management have also been instrumental in driving bottom-line growth and are expected to do so in the forthcoming quarters as well.

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Glass Demand to Remain Solid

Glass is increasingly becoming the preferred packaging choice for customers, given its endless recyclability without any loss in quality. O-I Glass is thus consistently investing in incremental capacity, joint ventures and acquisitions that will help in meeting this demand. To this end, OI intends to invest up to $630 million in new capacity expansion over the next three-year period which is expected to generate an average internal return rate of 20%.

Strategic Initiatives to Aid Growth in Place

OI expects its margin expansion initiative to generate annual benefits of $50 million between 2022 and 2024. It has successfully completed its $1.5-billion portfolio optimization program, way ahead of its schedule in 2024. Proceeds from the portfolio optimization program have been utilized to repay debt, fund attractive expansion projects and improve financial strength.

O-I Glass is firmly focused on driving innovation. Its glass melting technology, known as the MAGMA program, aids in reducing the amount of capital required to install, rebuild and operate OI’s furnaces. O-I Glass recently announced the commencement of the first U.S. MAGMA greenfield facility at Bowling Green, KY, by mid-2024.

Northbound Estimates

The Zacks Consensus Estimate for OI’s earnings for 2022 has moved up 1% over the past 60 days and is currently pegged at $2.25. The consensus mark for 2023 has also seen northward revision by 7% to $2.23 per share. The change in the company's future earnings potential, as reflected in earnings estimate revisions, has proven to be strongly correlated with the near-term price movement of its stock.

Zacks Rank & Other Key Picks

OI currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Some other top-ranked stocks are KnowBe4 , Caterpillar Inc. (CAT - Free Report) and Hudson Technologies (HDSN - Free Report) . KNBE, CAT and OI sport a Zacks Rank of 1 at present.

KnowBe4’s earnings surprise in the last four quarters was 216.7%, on average. The Zacks Consensus Estimate for the company’s 2022 earnings is pegged at 24 cents per share, indicating a 118.2% increase year over year. The estimates have gone up 20% in the past 60 days. KNBE’s shares have gained 8% so far this year.

The Zacks Consensus Estimate for Caterpillar’s current year earnings per share is pegged at $13.85, suggesting a  28% increase from last year. The estimates have moved up by 9% in the past 60 days.  It has a trailing four-quarter average earnings surprise of 14.7%. CAT’s shares have gained 16% year-to-date.

The Zacks Consensus Estimate for Hudson’s current-year earnings per share is pegged at $2.16, suggesting a 213% increase from last year. The consensus estimate moved 20.7% upward in the last 60 days. Hudson has a trailing four-quarter average earnings surprise of 297%. HDSN’s shares surged 123% so far this year.

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