On Sep 23, Zacks Investment Research upgraded leading manufacturer of consumer goods packaging products, Silgan Holdings Inc. (SLGN) to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold) on the back of expected benefits from acquisitions, record earnings and strong long-term fundamentals.
Silgan’s share price hit a 52-week high of $51.99 on Sep 2 and is currently trading at $47.86. Silgan still has the wherewithal for the stock to climb up. Investors also remain upbeat as the company reported record earnings in the last-reported quarter driven by strong performance in the closure segment.
What led to the upgrade?
Silgan Holdings reported record second-quarter adjusted earnings of 73 cents, a 14% increase from 64 cents in the year-ago quarter. The results beat the Zacks Consensus Estimate of 67 cents per share as well as the company’s guidance range of 60 cents to 70 cents per share.
Total revenue went up 4% year over year to $917 million. The Closures segment’s total revenue rose 28% year over year, which helped offset declines in revenues in the Metal Container and Plastic Containers segments. The Closure segment benefitted from increase in unit volumes due to the inclusion of sales from Portola Packaging (acquired in Oct 2013) and the impact of favorable foreign currency translation.
For full-year 2014, Silgan maintained its EPS guidance range of $3.10 to $3.30. The guidance reflects growth of 13.1% to 20.4% over record adjusted earnings per share of $2.74 in fiscal 2013.
For the third quarter of 2014, Silgan projects adjusted income per share in the range of $1.25 to $1.35, representing growth in the band of 2% to 10% over the prior-year quarter. The guidance factors in the expected benefit from Portola Packaging, slightly higher unit volumes in the metal container business and lower depreciation and pension expense.
On Sep 15, Silgan announced that it has acquired substantially all of the assets and assumed certain specified limited liabilities of Van Can Company, a manufacturer of metal containers in the United States. The acquired business, with sales of approximately $40 million, included two metal container manufacturing facilities. While Silgan Holdings produces rigid packaging for shelf-stable food and other consumer goods products, Van Can produces steel containers for seafood, poultry, pet food, and other non-food applications.
In addition, Silgan will continue to benefit from the Portola Packaging acquisition, which will enhance its Closure business and also enable expansion of its plastic closures offerings in Europe. Geographic expansion will also help in long-term growth. Increasing productivity and cost reduction initiatives, such as the Can Vision 2020, will also drive growth.
Estimate Revisions
Silgan’s earnings estimates have undergone positive revisions in the past 60 days. Over the same time frame, the Zacks Consensus Estimate for fiscal 2014 have moved north by 1% to $3.21, representing 15.7% year-over-year growth.
Other Stocks to Consider
Other players worth considering in the sector include Sealed Air Corporation (SEE), Ball Corporation (BLL) and Graphic Packaging Holding Co. (GPK). While Sealed Air Corporation holds a Zacks Rank #1 (Strong Buy), Ball Corporation and Graphic Packaging carry a Zacks Rank #2.
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