Berry Global (BERY) Exhibits Strong Prospects Amid Headwinds

On Apr 6, we issued an updated research report on Berry Global Group, Inc. BERY.

In the past three months, this Zacks Rank #3 (Hold) stock has returned 13.7% compared with the industry’s growth of 1.4%.

Present Scenario

Berry Global is poised to benefit from strength across its grocery, consumer-centric, snacking and e-commerce end markets. Also, favourable trends across healthcare end market and signs of improvement in other end markets are likely to drive performance. For fiscal 2021, the company anticipates its overall organic sales to grow 4%, higher than 2% anticipated earlier.

Also, the company’s RPC Group buyout (July 2019) is enhancing its growth opportunities, particularly in the plastic and recycled packaging industry. Notably, the company anticipates this buyout to generate annual cost synergies of $150 million, with $50 million of it expected to be realized in fiscal 2021 (ending September 2021). In fiscal 2020 (ended September 2020), buyouts contributed 28.6% to the company’s net sales.

For fiscal 2021, the company anticipates cash flow from operations of $1,525-$1,625 million and free cash flow of $875-$975 million.

However, the company’s high-debt profile is a concern. For instance, in the last five fiscal years (2016-2020), its long-term debt recorded an increase of 12.2% (CAGR). Notably, the metric remained high at $10,081 million exiting first-quarter fiscal 2021 (ended Jan 2, 2021).

Further, it has been experiencing escalating costs and expenses over time. In fiscal 2020 and first-quarter fiscal 2021, the metric jumped 28.1% and 9.7%, respectively, on a year-over-year basis, despite its cost-reduction initiatives. In fiscal 2020 and first-quarter fiscal 2021, its selling, general and administrative expenses jumped 45.8% and 5.2%, respectively.

Stocks to Consider

Some better-ranked stocks from the Zacks Industrial Products sector are AGCO Corporation AGCO, II-VI Incorporated IIVI and Regal Beloit Corporation RBC, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AGCO has a trailing four-quarter earnings surprise of 454.97%, on average.

II-VI has a trailing four-quarter earnings surprise of 83.68%, on average.

Regal Beloit has a trailing four-quarter earnings surprise of 31.56%, on average.

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