1 Packaging Stock Finally Worth Buying?

Ball Corporation (NYSE:BALL) is a monster in the packing industry, jotting up sales last year alone of$12.06 billion.

At a time when consumer awareness and the rules set by regulator have led to more environmentally-friendly packaging options, Ball has been leaning into these tailwinds. 

Its specialty is aluminum and the packaging industry has been incorporating it more because it can be used repeatedly without any degradation in quality, and it also makes distinctive package designs more feasible. The strength and attractiveness of aluminum are also key attributes that have led to a growth in its popularity.

So far this year those trends have been very positive for Ball Corp shareholders with the stock up 18% year-to-date, rivaling the broader market and suggesting the future may be even brighter for this packaging behemoth.

Ball Is Making Smart Financial Moves

In February, Ball Corporation announced the successful completion of the sale of its aerospace business at a price of around $5.6 billion. The company intends to use nearly $4.5 billion from after-tax cash obtained through this sale to lower leverage, give back value to shareholders, and further invest in sustainability initiatives.

Around $2 billion of the money left after tax will be assigned to decreasing net debt and fortifying the company’s financial standing. About $2 billion more will be allocated to repurchasing shares that will further support shareholder value.

The tradeoff of share buybacks has always been that earnings per share rise as share count drops but the act is temporary in nature and achieved through financial engineering. It also lessens the opportunities to immediately reinvest in other potentially profitable projects and slow down long-term expansion.

Earnings Are Up

The financial moves and industry tailwinds have been a boon for Ball Corp with earnings before taxes rising by 32.5% in the fiscal second quarter, up from last year’s figure, to $200 million.

The balance sheet is looking more sturdy too with cash and cash equivalents coming in at $1.35 billion, up from $955 million as of June 30, 2024.

But it hasn’t all been plain sailing. In spite of these positives, Ball Corp has run into some choppy waters with net sales falling by 3.5% year-over-year to $2.96 billion.

Net earnings and earnings per share of the company also fell by 8.1% and 7.3% in comparison to the prior year’s period, which led to net earnings amounting to $159 million with an EPS of $0.51

And the company’s total assets slid to $18.96 billion from $20.17 billion on a year-over-year basis too. The results are good and bad news for Ball Corporation, revealing both its potential and fair of share difficulties in managing financial duress, and debt in particular of $5.5 billion.

The Good and Bad of Ball Corp

Ball Corp has its fair share of positives, not least the management share buyback plan. But its shareholder yields of 24.7% is scintillating.

Add to that a 1.2% dividend yield and a payout ratio of almost 6% and you can see there is ample room to increase it over time. Indeed the dividend has been paid out consistently for 52 years straight.

For conservative investors, it’s also nice to see the share price demonstrating low price volatility for the most part. That’s in large part a function of the massive revenues, solid margins and proven business model.

These are reflected in the key numbers. For example, Ball Corporation’s trailing-12-month net income margin is 30.40%, way above the industry average of 5.07%.

Still, the financials aren’t industry beating in all categories. Its trailing-12-month EBITDA margin is 14.95%, lower than the industry average of 16.51% by about 9.5%.

Ball Corporation’s trailing-12-month CAPEX/Sales of 5.05% also shows it has decreased by 36.2% compared to the industry average of 7.90%. 

And its trailing-12-month gross profit margin of 19.93% is below the sector average of 28.23% too.

Is Ball Stock a Buy?

According to 17 analysts, Ball stock is a solid buy with upside potential to $71.12 per share, suggesting 6% upside.

Revenue is forecasted to decrease by 14.2% year-over-year, reaching $12.04 billion for the fiscal year ending December 2024.

EPS is expected to rise to $3.10, which signifies around 6.8% growth compared with last year’s results. This mixed outlook presents a complex picture of the company’s financial health.

Also, Ball Corporation’s stock is trading at a high valuation. The forward non-GAAP P/E ratio of the company stands at 20.44x, which is above the sector average of 15.39x. Also, the forward EV/Sales ratio sits close to 2x, roughly 20.8% higher than that for the industry.

The forward EV/EBITDA ratio is somewhat alarming at 12.30x, approximately 46.9% more than the industry average of 8.37x. Also, its forward price-to-sales (P/S) ratio stands at 1.60x, which is around 21.1% higher than the industry norm of about 1.32x.

Lastly on key metrics, a forward price-to-book ratio is around 3.51x. This indicates an astounding rise of about 101.3%, higher than other companies in this sector, with their mean value standing near 1.75x.

So, who is Ball Corp a fit for? Most likely, investors with a longer term horizon who prefer a stock that demonstrates low volatility historically yet has some decent opportunity to rise and pays a modest dividend. 

What you’re buying with Ball Corp most of all is the confidence that the packaging industry is reliable and predictable, leading to revenues that can be confidently forecast and earnings alongside them.

As management strives to lower debt and improve the balance sheet as well as to boost earnings per share through buybacks, expect the market to follow suit. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.