On May 9, we issued an updated research report on Silgan Holdings Inc. (SLGN - Free Report) . The company is poised to gain from synergies from the Dispensing Systems acquisition. Improvement in capital expenditures and lower effective tax rate will also drive growth.
Let’s illustrate these growth factors in detail.
Dispensing Systems Acquisition Remains a Catalyst
Silgan Holdings’ Closures segment posted impressive results in first-quarter 2018, mainly driven by the acquisition of Dispensing Systems. The Dispensing Systems operations enjoyed strong volumes, particularly in fragrance, health care, and lawn and garden markets in the first quarter. Silgan Holdings expects that the closures business will likely benefit from the Dispensing Systems operations, including synergies, continued benefits of manufacturing efficiencies, and higher unit volumes
Notably, Silgan Holdings’ adjusted earnings per share outlook of 50-54 cents for second-quarter 2018 reflects 49% year-over-year increase at the mid-point. This increase is primarily a result of the inclusion of the Dispensing Systems operation. The company expects solid top-line growth for the business in the near future.
U.S. Tax Reform to Aid Silgan Holdings’ Earnings
Silgan Holdings expects effective tax rate for 2018 of around 23-25%, down from 33.8% in 2017. The lower tax rate reflects the impact of U.S. Tax Cuts and Jobs Act of 2017. Further, the tax reform is anticipated to reduce future cash obligations for the existing net deferred tax liabilities, reduce tax rates on future U.S. earnings, and enable greater flexibility to utilize global cash to invest in the most optimal locations.
Focus on Capital Expenditure to Boost Results
For full-year 2018, Silgan Holdings expects capital expenditures to be around $200 million in 2018, up from $175 million reported in the prior year. Notably, capital expenditures in 2018 include new facilities in Fort Smith, AR and Allentown, PA.
Share Price Performance
Silgan Holdings has outperformed its industry with respect to price performance over the past six months. The stock has lost around 5% compared to the loss of 9% incurred by the industry during the same time frame.
Zacks Rank & Other Stocks to Consider
Silgan Holdings currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the same sector include Caterpillar Inc. (CAT - Free Report) , Terex Corp. (TEX - Free Report) and H&E Equipment Services, Inc. (HEES - Free Report) . While Caterpillar and Terex sport a Zacks Rank #1 (Strong Buy), H&E Equipment Services carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Caterpillar has a long-term earnings growth rate of 13.3%. The stock has appreciated 51% in a year’s time.
Terex has a long-term earnings growth rate of 20.2%. The company’s shares have been up 26% during the past year.
H&E Equipment Services has a long-term earnings growth rate of 17.4%. Its shares have rallied 75% in the past year.
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