Jefferies Tweaks Estimates & Price Targets on Paper & Packaging Industry, Calls it Almost Recession Proof
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Price: $45.75 +1.08%
Rating Summary:
5 Buy, 8 Hold, 0 Sell
Rating Trend:
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Today's Overall Ratings:
Up: 11 | Down: 35 | New: 23
Rating Summary:
5 Buy, 8 Hold, 0 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 11 | Down: 35 | New: 23
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Jefferies believes that the paper and packaging sector will be able to withstand a recession as 75 percent of its sales come from the food and beverage industry, a growing emerging markets presence, and large percentage of its COGS are tied to raw material costs.
The firm notes that earnings were up 3.6 percent in the last recession and only down 2.1 percent in 2001. Jefferies also comments that the stocks in the sector look undervalued as 2012 free-cash-flow yields are currently at 12 percent, well above their historical average of 4 to 5 percent.
An analyst at Jefferies reports, "the last time the group traded at these levels, it was at the bottom of the market and it outperformed the market handily afterwards.
At a conference in which Jefferies hosted, management teams from numerous companies highlighted that if the economy enters into a recession the drop off in volumes would be more modest, with their customers' inventories well below levels prior to the recession. Management also pointed out that multiples have come in recently and they may look at tapping the cheap credit markets for M&A.
Jefferies top picks in the paper and packaging industry are Ball Corp. (NYSE: BLL) and Crown Holding (NYSE: CCK) as they both reported strong earnings growth, compared to its peers and the rest of the market, during the last rescission. These two companies are also increasing their exposure in emerging markets which should help drive earnings. BLL and CCK announced that they plan on using their cash generated to buyback shares, allowing them to generate double-digit earnings growth in a recessionary type environment.
The firm comments that Graphic Packaging Holding (NYSE: GPK), Owens-Illinois (NYSE: OI), and Sealed Air (NYSE: SEE) are oversold as all of them have free-cash-flow yields above 15 percent, but remain in the "penalty box" due to a loss of credibility with their management team.
A list of companies that Jefferies covers in the paper and packaging industry:
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The firm notes that earnings were up 3.6 percent in the last recession and only down 2.1 percent in 2001. Jefferies also comments that the stocks in the sector look undervalued as 2012 free-cash-flow yields are currently at 12 percent, well above their historical average of 4 to 5 percent.
An analyst at Jefferies reports, "the last time the group traded at these levels, it was at the bottom of the market and it outperformed the market handily afterwards.
At a conference in which Jefferies hosted, management teams from numerous companies highlighted that if the economy enters into a recession the drop off in volumes would be more modest, with their customers' inventories well below levels prior to the recession. Management also pointed out that multiples have come in recently and they may look at tapping the cheap credit markets for M&A.
Jefferies top picks in the paper and packaging industry are Ball Corp. (NYSE: BLL) and Crown Holding (NYSE: CCK) as they both reported strong earnings growth, compared to its peers and the rest of the market, during the last rescission. These two companies are also increasing their exposure in emerging markets which should help drive earnings. BLL and CCK announced that they plan on using their cash generated to buyback shares, allowing them to generate double-digit earnings growth in a recessionary type environment.
The firm comments that Graphic Packaging Holding (NYSE: GPK), Owens-Illinois (NYSE: OI), and Sealed Air (NYSE: SEE) are oversold as all of them have free-cash-flow yields above 15 percent, but remain in the "penalty box" due to a loss of credibility with their management team.
A list of companies that Jefferies covers in the paper and packaging industry:
- Ball Corp's (BLL) Buy rating and $46 price target was reaffirmed, but its FY11 and FY12 EPS estimates were tweaked from $2.74 and $3.12 to $2.77 and $3.20.
- Bemis's (NYSE: BMS) price target was lowered from $35 to $34 and its Holding rating was reiterated with its EPS estimates of $2.08 and $2.39 for FY11 and FY12.
- Crown Holding's (CCK) $49 price target and Buy rating was reaffirmed along with its $2.89 and $3.75 EPS estimates for FY11 and FY12.
- Graphic Packaging's (GPK) $6.50 price target and Buy rating was reaffirmed along with its $0.35 and $0.45 EPS estimates for FY11 and FY12.
- Owens-Illinois (OI) price target was lowered from $35 to $32 and its Buy rating was reiterated with its EPS estimates of $2.36 and $3.10 for FY11 and FY12.
- Sealed Air (SEE) $29 price target and Buy rating was reaffirmed along with its $1.78 and $1.98 EPS estimates for FY11 and FY12.
- Sonoco Product's (NYSE: SON) price target was lowered from $37 to $34 and its Hold rating was
reiterated with its EPS estimates of $2.46 and $2.70 for FY11 and FY12.
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