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Reasons to Hold On to Ball Corporation (BLL) Stock for Now

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Ball Corporation (BLL - Free Report) is poised to gain from its focus on cost-cutting actions and acquisitions. However, continued decline in domestic beer consumption and concerns in Brazil remain headwinds. This Zacks Rank #3 (Hold) company has an estimated long-term earnings growth rate of 5.5%.

Below, we briefly discuss the company’s potential growth drivers and possible headwinds.

Factors Favoring Ball Corporation

Positive Earnings Surprise History

Ball Corporation outpaced the Zacks Consensus Estimate in three out of the last four quarters, coming up with an average beat of 3.66%.

Price Performance

Ball Corporation’s shares have outperformed the industry over the past year. The stock has gained around 4%, while the industry lost around 5% during the same time frame.



 

Upbeat Q2

Ball Corporation delivered adjusted earnings of 58 cents per share in second-quarter 2018, which improved around 9% year over year and came in line with the Zacks Consensus Estimate. Total revenues increased 8.6% year over year to $3.10 billion, surpassing the Zacks Consensus Estimate of $3.02 billion.

The company’s results were driven by stellar global demand for aluminum packaging and lower corporate costs, despite declines in U.S. beverage-can volumes and short-term impact from the Brazilian truckers' strike.

Strong Guidance

Ball Corporation expects its free cash flow will be around $800 million and capital spending to be in excess of $700 million in 2018. The company remains on track with deleveraging and anticipates net debt to comparable EBITDA ratios in the range of 3.0-3.5 times by the end of this year. Furthermore, the net $50 million of annual fixed cost savings associated with the North American optimization program is anticipated to benefit the company’s fourth-quarter 2018 performance and beyond.

Growth Drivers in Place

In July 2018, Ball Corporation closed the sale of its U.S. steel food and steel aerosol packaging assets, and formed a joint venture, Ball Metalpack. The company expects that its 49% ownership of Ball Metalpack's financial results will be reported in equity in results of affiliates within consolidated statements of earnings, in third-quarter 2018. This transaction will enable the company to immediately free up capital that was generating below 9% after-tax return on capital and will be beneficial for the aerospace business.

Further, Ball Corporation began production in its new specialty beverage-can manufacturing facility in Goodyear, AZ, during the second quarter. However, it ceased operations at the Birmingham, AL, beverage can end making facility. In addition, the company's new aluminum beverage-can facility, near Madrid, Spain, commenced production late in the quarter. Its Colorado facility expansions in Westminster and Boulder, CO, are on track for completion in fourth-quarter 2018.

The company will likely benefit from outstanding requests for bids and proposals, and contract wins. It has approximately $4.3 billion as contracts already won, but not yet booked into current backlog, which will drive growth. Regarding the Rexam acquisition which was closed in June 2016, Ball Corporation is on track to achieve 2019 targets largely through the stated synergy benefits from the transaction.

Headwinds for Ball Corporation

The truckers’ strike in Brazil impacted Ball Corporation’s comparable operating earnings during the second quarter. Furthermore, political disruptions due to the upcoming elections will impact results in the region. Also, the company continues to anticipate tougher year-over-year comparisons in second-half 2018 for the Brazilian business, due to lack of profit recorded on the INS manufacturing contract in 2017. Additionally, changing consumer preferences in the United State has led to domestic mass beer declines, which will impact the company's North American segment’s performance.

Bottom Line

Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.

Stocks to Consider

Some better-ranked stocks in the same sector are W.W. Grainger, Inc. (GWW - Free Report) , iRobot Corporation (IRBT - Free Report) and Atkore International Group Inc. (ATKR - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Grainger has a long-term earnings growth rate of 12.5%. Its shares have appreciated 118% over the past year.

iRobot Corporation has a long-term earnings growth rate of 19.5%. The company’s shares have gained 22% in a year’s time.

Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 65% in a year’s time.

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