Silgan Holdings Inc. (SLGN - Free Report) is poised to gain from acquisitions, manufacturing efficiencies and cost control efforts.
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, combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities for investors.
Below, we briefly analyze the company's potential growth drivers and possible headwinds.
Factors Favoring Silgan
Positive Earnings Surprise History: The company has a trailing four-quarter positive earnings surprise of 2.21%, on average.
Upbeat Guidance: For 2020, Silgan expects adjusted earnings per share at $2.28-$2.38. The mid-point of the range indicates year-over-year improvement of 8% from 2019. Even though sales are anticipated to be lower across all of its segments, continued manufacturing efficiencies across all businesses will lead to higher segment income.
Positive Growth Projections: The Zacks Consensus Estimate for earnings is currently pegged at $2.31 for current year, suggesting year-over-year growth of 6.94%. For 2021, the Zacks Consensus Estimate for earnings is $2.47, indicating year-over-year growth of 6.78%. Further, the company has an estimated long-term earnings growth rate of 6%.
Underpriced: Looking at Silgan’s price-to-earnings ratio, shares are underpriced at the current level, which seems to be attractive for investors. The company has a trailing P/E ratio of 11.1, which is below the industry average of 13.5.
The company continues to increase market share, expand and diversify customer base, geographic presence and product lines through acquisitions and internal growth. Since its inception, Silgan Holdings acquired 36 businesses. This along with organic growth through the years, Silgan has become a leading manufacturer of metal containers in North America and Europe, with the metal container segment generating net sales of $2.47 billion in 2019. Its overall share of the metal food container market in the United States has gone up from 10% in 1987 to slightly more 50% of the market in 2019. Through acquisitions, Silgan has become a leading worldwide manufacturer of closures for food, beverage, health care, garden, personal care, home and beauty products and the Closures segment generated net sales of $1.41 billion in 2019, a sevenfold increase since 2003. The company has also improved its market position in the plastic container business since 1987, with the segment’s net sales increasing sevenfold to $611.1 million in 2019.
Silgan continues to maintain dominant position in these markets backed by its high levels of quality, service and technological support. Its low cost producer position, strong long-term customer relationships and widespread geographic presence are added positives.
The company continually evaluates cost-reduction opportunities across each of its businesses, including rationalizations of the existing facilities through plant closures and downsizings, which, in turn, will drive margins. Notably, in 2019, Silgan initiated a multi-year footprint optimization plan in the metal container business in the United States to reduce capacity and continue to drive cost reductions. This plan includes the likely shutdown of six metal container manufacturing facilities over a three year period. As part of this plan, Silgan has shut down two metal container manufacturing facilities in fourth-quarter 2019.
Headwinds to Counter
Net sales in all the segments are expected to be impacted in 2020 from the prior-year levels primarily due to the pass through of anticipated lower raw material costs.
Silgan along with Ball Corporation (BLL - Free Report) and Crown Holdings, Inc. (CCK - Free Report) belongs to Containers - Metal and Glass industry. Silgan’s share price has fallen 16.1% in the past one year compared with the industry’s decline of 22.9%.
Stocks to Consider
A better-ranked stock in the Industrial Products is Sharps Compliance Corp (SMED - Free Report) , which sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has an estimated earnings growth rate of 22.5% for 2020. Its shares have gained 7% over the past three months.
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