Here's Why You Should Hold on to Ball Corporation for Now

Ball Corporation BLL remains well poised for growth, banking on synergy benefits from the Rexam acquisition, the U.S. tax reform and the company’s focus on expanding geographic footprint. However, decline in domestic beer consumption, demand volatility in the EMEA region and competition in Brazil remain concerning.

The metal packaging products supplier, with a market capitalization of approximately $14 billion, currently carries a Zacks Rank #3 (Hold).

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

Factors Favoring Ball Corporation

Northbound Estimates

Investors should consider the positive trends on the estimate revision front. Analysts have been raising their estimates for Ball Corporation lately, resulting in a favorable earnings picture.

Over the past 60 days, the Zacks Consensus Estimate for the current year and current quarter moved up around 2.7% and 4.9%, respectively.

The company has an estimated long-term earnings growth rate of 5.5%.

Value Growth Momentum (VGM) Score

Ball Corporation currently has a Zacks VGM score of B. Here V stands for Value, G for Growth and M for Momentum. Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of B, along with some other key metrics, makes the company a solid choice for investors.

Positive Earnings Surprise History

Ball Corporation has surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average beat of 2.51%

Price Performance

The company has outperformed the industry it belongs to in the past year. The stock has gained 8.8%, while the industry recorded growth of 5.8%.

Higher Inventory Turnover Ratio

Over the trailing 12 months, the inventory turnover ratio for Ball Corporation has been 5.8% compared with the industry’s level of 5.5%. A higher inventory turnover than the industry average implies that inventory is sold at a faster rate, suggesting inventory management effectiveness.

Growth Drivers in Place

In 2018, Ball Corporation will focus primarily on expanding its geographic footprint, aligning with the right customers and markets, growing with new products and capabilities, and leveraging the company’s technical knowhow. In sync with this, Ball Corporation’s construction of a state-of-the-art specialty beverage can-manufacturing facility in Goodyear, AZ, is right on schedule and budget, with production beginning early in the second half of 2018. Further, construction is on track at the company's new aluminum beverage-can facility in Madrid, Spain, which is scheduled to commence production by mid-2018. The company also stated that the Colorado facility expansions in Westminster and Boulder, CO, are on track for completion in the fourth quarter this year.

Further, Ball Corporation remains optimistic about the tax reform which will likely benefit its end markets. The company estimates that the Act will reduce its effective tax rate on comparable earnings from approximately 25% in 2017 to around 23% in the current year.

Ball Corporation’s Aerospace segment will benefit from its focus on world-class technology and proficiency, and year-over-year earnings growth. Regarding the Rexam acquisition, the company remains on track to achieve its 2019 targets largely through the stated synergy benefits from the transaction. From the synergy perspective, it had a three-and-a-half year plan to realize $300 million of net synergies.

Headwinds for Ball Corporation

In 2018, Ball Corporation continues to be plagued with headwinds in domestic beer consumption due to pressure on domestic mass beer declines. In Brazil, Ball Corporation’s volume growth in 2018 is predicted to be slower than the market rate due to intense competition. The company also anticipates tougher year-over-year comparison in the second half of 2018 for the business, due to the lack of profit recorded on the INS manufacturing contract in 2017. Also, the company’s performance will be marred by volatile volumes in the EMEA beverage can business driven by governmental regulation.

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 Mobile Mini, Inc. MINI, Dover Corporation DOV and Ashtead Group plc ASHTY. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mobile Mini has a long-term earnings growth rate of 14%. Its shares have rallied 46%, over the past year.

Dover has a long-term earnings growth rate of 13%. The company’s shares have been up 25% during the same time frame.

Ashtead Group has a long-term earnings growth rate of 15%. The stock has gained 35% in a year’s time.

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