KeyBanc Starts Berry Plastics Group (BERY) at Sector Weight
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KeyBanc initiated coverage on Berry Plastics Group (NYSE: BERY) with a Sector Weight rating.
Analyst Adam Josephson said, "In FY16, BERY’s EBITDA margins went from 16.1% to 18.6% (a substantial 250 basis point improvement), which are the highest in the Company’s recent history and are among the highest of the publicly traded plastic packaging companies. We commend BERY on this impressive performance. BERY has been benefiting from improved resin sourcing (as a result of its increased scale, which itself is the result of BERY’s recent acquisitions), lower resin costs, and improved operating performance, among other factors,"
The analyst added, "BERY could continue to benefit from improvements in resin sourcing thanks to its pending AEP acquisition, and could benefit from any near-term weakness in resin prices, but even so, we have difficulty expecting much further margin expansion considering how high BERY’s margins already are and considering that 2016 average polyethylene (PE) prices are at their lowest since 2012 and that 2016 average polypropylene (PP) prices are well below where they’ve averaged over the past five years. If BERY’s volumes remain flat to down, and given how high its margins already are, we see limited scope for further EBITDA growth exclusive of acquisitions. BERY is trading at roughly a turn discount to its packaging peers on EV/EBITDA, which we consider appropriate given its leverage (4.5x EBITDA compared to the group average of around 3.1x)."
Shares of Berry Plastics Group closed at $49.94 yesterday.
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