Crown Holdings Inc. (CCK - Free Report) is progressing well on investing in capacity that will help it capitalize on growing demand for beverage cans. Strategic acquisitions to increase geographic presence and product line, and focus on cost control will also drive growth. However, weak global manufacturing activity and the impact of the coronavirus outbreak will weigh on the company’s near-term results.
The stock has an estimated long-term earnings growth rate of 7%, higher than the industry’s 6.3%.
The company currently carries a Zacks Rank #3 (Hold) and a VGM Score of A. 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.
You can see the complete list of today's Zacks #1 Rank stocks here.
Factors Favoring Crown Holdings
Upbeat Q4 Results
Crown Holdings reported fourth-quarter 2019 adjusted earnings per share of $1.04, which surpassed the Zacks Consensus Estimate of 95 cents. The bottom line also improved 4% year over year and came in higher than management’s guidance of 93-98 cents.
Crown Holdings expects adjusted earnings per share to be $5.40-$5.60 for 2020. The mid-point of the guidance range reflects year-over-year growth of 8%. This will be aided by the ongoing momentum in beverage can volume growth. Beverage can volumes remain particularly strong in Brazil, Europe, Southeast Asia and the United States, as consumers continue to increasingly prefer cans over other packaging. In 2019, the North American beverage can industry grew at its fastest pace in 25 years. Overall in 2019, beverage can volumes were up 3%. The company expects beverage can volumes to be up more than 5% in 2020.
Over the past year, Crown Holdings’ shares have gained 9%, outperforming the industry’s growth of 6.8%.
Earnings Surprise History
The company has a trailing four-quarter positive earnings surprise of 1.71%, on average.
Return on Equity (ROE)
Crown Holdings’ trailing 12-month ROE of 37.7% reinforces its growth potential. The company’s ROE is higher than the ROE of 26.8% for the industry, highlighting its efficiency in utilizing shareholders’ funds.
Upbeat Earnings Growth Projections
The Zacks Consensus Estimate for the company’s ongoing-year’s earnings per share is currently pegged at $5.48, suggesting growth of 7.2% from the prior-year quarter.
Crown Holdings is anticipated to gain from a rise in global beverage-can demand. Developing markets such as Southeast Asia and Brazil have experienced higher growth rates due to rising per capita income and the consequent increase in beverage consumption. While economies in Europe and North America are more mature, there are still prospects aided by beverages, such as energy drinks, teas, juices, sparkling water and craft beer, and an increased preference for cans over certain other forms of beverage packaging. With its many inherent benefits, including being infinitely recyclable, the beverage can continues to become the increasingly preferred package for marketers and consumers globally.
To meet the rising beverage-can demand, Crown Holdings intends to build new facilities and is poised to gain from the geographic expansion of beverage can lines. The company installed a new aluminum beverage can line at the Weston, Ontario plant, which began production in January. Crown Holdings is adding a third high-speed line at the Nichols, NY facility, which is expected to commence operations in the second quarter. Both the Nichols and Weston lines will be capable of producing multiple sizes.
Crown Holdings has commenced operations at a new facility in Rio Verde, Brazil. It also begun construction of a new beverage can plant in Nong Khae, Thailand, which will begin production during third-quarter 2020. Further, its multi-year project to convert beverage can capacity in Spain from steel to aluminum is close to completion. Both lines in the Seville plant, which have multi-size capability, will be in commercial production early in the second quarter.
Crown Holdings is focused on disciplined pricing, cost control and capital allocation. Through 2020, the company's primary capital-allocation focus will be to reduce leverage while still investing in business. The company continues to pursue growth opportunities through capacity additions to existing plants, new plants in existing markets, and strategic acquisitions in geographic areas and product lines.
Despite significant growth prospects, the Transit Packaging segment’s near-term outlook is grim given the slowdown in the global manufacturing activity. Further, the impact of the coronavirus outbreak will weigh on the company’s results in the near term.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector include Sharps Compliance Corp (SMED - Free Report) , Tetra Tech, Inc. (TTEK - Free Report) and Cintas Corporation (CTAS - Free Report) . While Sharps Compliance Corp sports a Zacks Rank #1 (Strong Buy), Tetra Tech and Cintas carry a Zacks Rank #2 (Buy).
Sharps Compliance has an estimated earnings growth rate of 767% for the ongoing year. In a year’s time, the company’s shares have gained 36%.
Tetra Tech has an estimated earnings growth rate of 10.7% for the ongoing year. In a year’s time, the company’s shares have gained 38%.
Cintas has a projected earnings growth rate of 15.7% for 2020. The company’s shares have rallied 17% over the past year.
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