On Jan 20, Zacks Investment Research upgraded Bemis Company, Inc. (BMS) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Shares of Bemis got a lift as oil prices went into a free fall and hit a five-year low of $53.60 a barrel on Dec 16. Cheaper oil means lower gasoline prices. This, along with an improving employment scenario, will lead to a positive turn in consumer spending patterns and improve packaging demand, thereby facilitating Bemis’ growth. Moreover, resin, a derivative of oil, makes up almost a major portion of its cost of goods sold. Decline in resin prices will lead to meaningful margin expansion for Bemis.
Bemis’ share price has shown an upward trend since it reported third-quarter results on Oct 23. Adjusted earnings rose 24% year over year to 52 cents per share and also outpaced the Zacks Consensus Estimate. Bemis reported record adjusted earnings of 67 cents per share in third-quarter 2014, up 11.7% year over year and in line with the company’s guidance range of 65 cents to 70 cents.
Moreover, in the third quarter, Bemis divested its Pressure Sensitive Materials (MACtac) business in order to raise $170 million in cash. Earlier, in Apr 2014, Bemis had divested its Paper Packaging Division to Hood Packaging Corporation. These divestments will allow the company to focus on strategic opportunities in high-barrier flexible packaging, medical and pharmaceutical packaging, as well as in emerging markets. In addition to the divestitures, Bemis has closed nine plants as part of its facility consolidation program. These cost reduction efforts would also continue to benefit the company.
Following the maturity of $400 million bonds on Aug 1, 2014, management refinanced these bonds into a combination of $200 million bank loan (maturing in 2022) and commercial paper of $200 million. This has effectively reduced the interest rate from 5.65% to about 1%, thereby reducing the company’s interest costs and benefit earnings.
Bemis projects capital expenditure of approximately $175 million for 2014. This increased investment will fuel growth in 2015 by meeting packaging demands in its target end markets, including liquid, medical device, pharmaceutical and global high-barrier platforms.
The Zacks Consensus Estimate for Bemis for fiscal 2015 has gone north by 2% over the past 60 days and currently stands at $2.50, reflecting 9.2% year–over-year growth.
Other Stocks to Consider
Other stocks worth considering at the moment include Sealed Air Corporation (SEE), UFP Technologies, Inc. (UFPT) and AptarGroup, Inc. (ATR). While Sealed Air holds a Zacks Rank #1 (Strong Buy), UFP Technologies and AptarGroup, Inc. carry a Zacks Rank #2 (Buy).
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