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The Glass Products Industry Is on A Secular Growth Trajectory

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The glass products industry caters to many markets, so there are several growth drivers. This is because of the versatility, transparency, durability and aesthetic appeal of glass. The advancements in glass technology have also played a crucial role in the industry's growth. Innovations such as smart glass, self-cleaning glass, and energy-efficient coatings have expanded the range of applications for glass products. The rising consumer disposable income, urbanization and expanding middle-class population in emerging markets are also fueling demand for glass products, particularly in the Asia-Pacific region.

According to Global Market Insights, the glass manufacturing market will witness a CAGR of 4.8% between 2023 and 2032, driven by rising demand for consumer electronics. But glass is widely used in several other industries as well.

Construction: Glass is a versatile material that can be used to create a variety of aesthetic and functional effects in buildings. Being a relatively energy-efficient material, glass can also help to reduce the cost of heating and cooling buildings. Therefore, both commercial and residential buildings are a source of demand. Additionally, urbanization is also a big factor, because it is the result of increased overall construction activity that in turn increases demand for windows, doors, mirrors, facades, architectural features, furniture and other items using glass. Data Bridge Market Research expects the construction glass market to witness a CAGR of 7.5% between 2022 and 2030.

Automobile: Because it is lightweight, strong and transparent, glass helps to protect occupants in the event of an accident and offers visibility to drivers. The rising demand for glass in automobiles, such as windshields and side windows, mirrors, as well as increasingly, internal screens, is also driving the growth of the glass products industry. Although slightly dated, the available data from Mordor Intelligence shows that the growth expectation for the automotive glass industry is a CAGR of 5% between 2021 and 2026.

Electronics: Glass is a strong and scratch-resistant material that can help to protect electronic devices from damage. Its transparency is also a factor driving its use in displays.  The increasing demand for glass in electronics, such as smartphones and tablets, is also driving the growth of the glass products industry.

Packaging: One of the strongest drivers of the industry is the packaging segment, which includes food and beverage, pharmaceutical, cosmetics, and other segments.  The increasing demand for sustainable and eco-friendly packaging has driven the use of glass containers as a preferred choice over plastic.

Glass is recyclable and offers better preservation and protection for food and beverages. It is also a relatively inert material, and so, it does not alter the taste or flavor. The increasing demand for glass packaging in food and beverage products, such as beer, wine and spirits as consumption increases across the world, is driving the growth of this segment.

Demand in the cosmetics segment is related to protecting the chemical composition, fragrance and other characteristics of perfumes, lotions and so forth.

The pharmaceuticals segment is also expected to grow at a healthy pace due to the increasing demand for glass packaging in pharmaceutical products. Here too, preservation is a big factor, and the inertness of glass, as well as its ability to handle extremes of temperatures plays an important role.

Additional factors driving demand for glass packaging:

Sustainable packaging: Glass is a recyclable material that can be reused indefinitely. It is also a relatively inert material, which means that it does not leach chemicals into food or beverages.

Premium perception: Glass is often associated with quality and luxury.

Tamper-evident packaging: Glass is a strong and durable material that is difficult to tamper with. Being relatively transparent, it allows consumers to see the contents of the package before they purchase it.

According to GMI Insights, the glass packaging market will see a CAGR of 4.5% from 2023 to 2032 with borosilicate being the strongest category.

Glass production takes months to start up if it is shut down for any reason, which is what happened during the pandemic. This creates a backlog that is very hard to make up. Additionally, the last few years have also seen significant supply chain issues and energy price escalation that further restricted supply and drove up prices. Therefore, there is a certain amount of pent-up demand in the market today. As availability improves, prices are bound to normalize, which will have a certain impact on companies’ performances. This does not in any way negate the growth story outlined above. On the other hand, factors such as its link with essential goods, environmental impact and the growing urbanization in many geographies make this market relatively stable in any economy.

Here are a couple of stocks to consider for those looking for exposure to the industry:

O-I Glass, Inc. (OI - Free Report)

Perrysburg, Ohio-based OI Glass is one of the largest glass packaging manufacturers in the world with manufacturing facilities worldwide, catering to customers in over 82 countries. The company offers glass containers for a wide range of industries, including food and beverages, spirits, pharmaceuticals, and cosmetics. Its range of glass products include bottles and jars in various shapes, sizes and colors, according to the unique packaging needs of its customers. The company reduces its environmental impact through responsible glass production and recycling initiatives. It sells its products directly to customers under annual or multi-year supply agreements, as well as through distributors.

OI-Glass reported an earnings surprise of 55.4% on revenue that surprised by 2.8%.

Its estimates for 2023 are up 30 cents (10.5%) in the last 30 days, representing 37.8% growth from 2022. The 2024 estimates are up 16 cents (5.5%) on average, or slightly down from this year’s explosive growth (although if estimate revisions continue in the same direction, it could ultimately be growth from this year).

The shares appear to be undervalued both with respect to the S&P 500 and the industry. They are currently trading ta a 58.4% discount to the S&P 500 and a 38.9% discount to the industry. They’re also trading at a 7% discount to their median value over the past year. No wonder then that they carry a Zacks Rank #1 (Strong Buy).

Apogee Enterprises, Inc. (APOG - Free Report)

Minneapolis, Minnesota-based Apogee Enterprises is a leading provider of architectural glass, aluminum framing systems and installation services. The company specializes in the design, fabrication and installation of glass and metal products for commercial buildings like office buildings, retail centers, hotels, and healthcare facilities. Its products include curtain wall systems, storefronts, entrances and windows. The company also offers architectural glass coatings and other value-added services to enhance the functionality and energy efficiency of its products.

Apogee’s earnings beat of 3.6% was not too impressive, especially given that it came on top of a slight revenue miss of around 1.3%, attributed to holiday shutdowns and normal seasonality that impacted sales volume. The company is moving away from lower-margin business as part of its 2022 restructuring and new strategic direction. A more differentiated range of offerings, new lean initiatives, a strong pricing environment and suitable M&A are part of the long-term strategy.

Accordingly, the Zacks Consensus Estimate for the year ending February 2024 is up a couple of cents in the last 60 days and for the following year, its up a penny. The current year is expected to be a bit weak with both revenue and earnings coming in flattish. In the following year, revenue and earnings are currently expected to increase 1.4% and 3.5%, respectively.

Apogee trades at a 15.6% discount to the industry and a 48.6% discount to the S&P 500. It also trades at a 12.8% discount to its median value over the past year. Therefore, any way you look at it, the shares are significantly undervalued with room for upside. It seems as if the company is being unduly punished for near-term challenges, creating an opportunity to buy.

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