KeyBanc Downgrades Greif Inc. (GEF) to Underweight
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KeyBanc downgraded Greif Inc. (NYSE: GEF) from Sector Weight to Underweight with a price target of $47. Analyst Adam J. Josephson said organic sales growth is likely to remain weak and FX will likely be a notable drag.
"GEF's new management has done an admirable job of generating margin expansion over the past year, though the consensus FY16 EBITDA estimate has only increased by 1% YTD even with that significant margin expansion. While EBITDA estimates are only slightly up YTD, the shares are up 82% (vs. 10% for the S&P 500), well above what we view as reasonable. As a result, GEF is trading at an NTM P/E multiple on consensus estimates of ~20x, well above the three-year average of ~16x. GEF is dealing with a strengthening U.S. dollar and a continued choppy global economy, the latter of which will likely lead to continued weak organic sales growth. GEF missed consensus on EBITDA in its F3Q16 on account of sales weakness, and we do not expect the sales pressures to abate anytime soon. Less than 50% of GEF's sales come from the U.S., which is why FX translation and the choppy global economy are particularly relevant for this industrial packaging company whose business is fairly cyclical," said the analyst.
Shares of Greif Inc. closed at $54.33 yesterday.
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