Owens-Illinois, Inc. (NYSE:OI) continues to benefit from successful joint venture and acquisitions. Further, positive trends in volumes, efforts to improve productivity across all businesses, functions, processes and geographies will help garner higher profits despite higher expenses.
Currently, the manufacturer of glass containers carries a Zacks Rank #3 (Hold). Here's why investors should hold on to the stock at present.
Earnings Estimate Revisions
The Zacks Consensus Estimate for earnings for fiscal 2018 and fiscal 2019 reflects year-over-year growth of 6.0% and 6.6%, respectively. The company has a long-term earnings growth rate of 5.7% holds promise.
Price Performance
The company outperformed the industry it belongs to in the past year. The stock has gained 10.8% while the industry dipped 0.2%.
Return on Equity (ROE)
Owens-Illinois’ trailing 12-month ROE supports its growth potential. The company’s ROE of 53.6% compares favorably with the industry’s average ROE of 50.2%, reflecting that it is more efficient in using shareholders’ funds.
Value Growth Momentum (VGM) Score
The company currently has a VGM score of A. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of A along with some other key metrics makes the company a solid choice for investors.
Valuation Looks Rational
Owens-Illinois is currently trading at a trailing 12-months P/E multiple of 8.5 while the industry’s average is pegged at 9.7. Consequently, the company is undervalued in comparison with its industry peers.
Positive Earnings Surprise History
The company has an impressive earnings history having outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average beat of 7.1%.
Upbeat Guidance
In 2018, positive trends in volumes and focus on Total Systems Costs (“TSC”) is likely to lead to higher earnings and cash flow. The company is improving productivity across all businesses, functions, processes and geographies. Its focus on TSC contributed approximately $39 million during 2017.
The company guides adjusted earnings in the range of $2.75-$2.85 per share for 2018. The mid-point of the range reflects a 6% year-over-year improvement with all regions projected to be more profitable and expand margins. This is projected to generate high-single digit growth in segment operating profit and contribute at least 40 basis points of margin expansion.
Growth Drivers in Place
Owens-Illinois continues to mitigate the impact of the ongoing decline in mega beer in the United States by positioning itself to benefit from the rapidly growing market of U.S. beer imports. It intends to achieve this through its joint venture (JV) with Constellation Brands, Inc. (NYSE:STZ) and long-term sales contracts in Mexico.
The company’s extension of the 50-50 JV with Constellation Brands for an additional ten years (to 2034) and expansion to include an additional furnace will be earnings accretive in the future.
Owen-Illinois’ acquisition of Vitro's food and beverage business has provided the company a competitive edge in the attractive and growing glass segment of the packaging market in Mexico, further solidifying its position as the world's leading glass container producer.
Bottom Line
Investors might want to hold on to the stock at present as it has ample positive prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the sector include Komatsu Ltd. (OTC:KMTUY) and H&E Equipment Services, Inc. (NASDAQ:HEES) . While Komatsu sports a Zacks Rank #1 (Strong Buy), H&E Equipment Services carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Komatsu has a long-term earnings growth rate of 32%. The stock has gained 33% in a year’s time.
H&E Equipment Services has a long-term earnings growth rate of 14%. Its shares have soared 63%, over the past year.
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Constellation Brands Inc (STZ): Free Stock Analysis Report
Owens-Illinois, Inc. (OI): Free Stock Analysis Report
Komatsu Ltd. (KMTUY): Free Stock Analysis Report
H&E Equipment Services, Inc. (HEES): Free Stock Analysis Report
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