Greif, Inc. (GEF - Free Report) is poised to gain from focus on operational execution, cost-reduction activities, and a solid and diverse product portfolio. The Caraustar acquisition will also drive growth.
The company has a market capitalization of $1.5 billion. Moreover, Greif outpaced the Zacks Consensus Estimate in all of the trailing four quarters, the average positive beat being 11.03%.
Below, we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Greif
Favorable Zacks Rank & VGM Score
At present, Greif carries a Zacks Rank #3 (Hold). It has a VGM Score of B. 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 for investors.
Greif’s trailing 12-month EV/EBITDA ratio is 6.5, while the industry's average trailing 12-month EV/EBITDA is 16.0. Consequently, the stock is cheaper at this point based on the ratio.
The company has delivered an earnings growth rate of 10.2% over the past five years, ahead of the industry’s 7.9%. The momentum is likely to continue as evident from the company’s estimated long-term earnings growth rate of 10%.
Growth Drivers in Place
Last February, Greif completed the acquisition of Caraustar Industries, Inc. for $1.8 billion, and is currently integrating its operations. The buyout has reinforced the company’s leadership in industrial packaging, and significantly bolstered margins, free cash flow and profitability.
The Paper Packaging segment is likely to benefit from the Caraustar acquisition and various new capital growth projects coming online, including a new corrugated sheet feeder in Palmyra, PA. Moreover, the company’s recent divestiture of the consumer packaging group business to Graphic Packaging Holding Company (GPK - Free Report) will enable Greif to deleverage its balance sheet and optimize capital allocation priorities, while focusing on core industrial franchise and strategic growth priorities in Intermediate Bulk Container production and containerboard integration.
Greif has raised the anticipated run rate synergies to at least $70 million by 2022 from the prior estimate of $45 million. This will be backed by realized synergies of $24 million in fiscal 2019, footprint optimization, unlocking incremental sourcing/commercial opportunities and savings related to system implementations.
The company’s wide range of industrial packaging product portfolio fulfills customers' rising demand for sustainable packaging options. It will keep benefiting from focus on operational execution, capital discipline, and a strong and diverse product portfolio. The company continues to execute cost-reduction activities across portfolio to counter the softer market demand.
Few Headwinds Ahead
The company continues to face challenging industrial markets across its portfolio and the overall demand environment remains soft. Greif expects adjusted earnings per share of $3.55-$3.91 for fiscal 2020. The mid-point of the range suggests a decline of 4% thanks to the macroeconomic uncertainty and the impact of the coronavirus outbreak. The company is uncertain about the ultimate impact of the coronavirus pandemic on its financials and customers. It expects the soft economic condition and mix erosion in the Paper Packaging segment for remainder of the fiscal year. Greif also expects lower price costs in paperboard, including reduction in published box board prices. These factors are likely to affect the company’s performance for the remainder of the fiscal year.
The Rigid Industrial Packaging & Services segment has been battling weak demand due to the declining industrial manufacturing environment. Volume weakness is pronounced in West and Central Europe, the Asia-Pacific region and the United States due to trade uncertainty and the coronavirus outbreak. Currency exchange rates are expected to remain volatile. This is likely to remain a concern for the segment in fiscal 2020. Further, in the Flexible Products & Services segment, the prevalent weak demand in Western Europe remains a concern.
Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.
Greif’s shares have lost 12% in the past year compared with the industry’s decline of 38.1%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. (SLGN - Free Report) , and Ampco-Pittsburgh Corporation (AP - Free Report) . While Silgan sports a Zacks Rank #1 (Strong Buy), Ampco-Pittsburgh carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 6% in the past three months.
Ampco-Pittsburgh has an expected earnings growth rate of 2.70% for the current year. The stock has appreciated 4% in the past three months.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>