On Friday, BofA Securities adjusted its stance on O-I Glass Inc. (NYSE: NYSE:OI) stock, moving its rating to Neutral from the previous Buy position. Alongside the downgrade, the firm also reduced the stock's price target to $16.00, a decrease from the earlier $21.00 target.
The revision by BofA Securities comes amid expectations of persistent sluggish demand for glass-packaged alcoholic products. The firm anticipates this trend to continue into the second half of the year, noting ongoing destocking activities and a consumer shift towards prepackaged cocktails and cheaper spirits, which are more commonly packaged in alternative materials like cans or plastic.
Recent scanner data has indicated a downturn in the glass packaging sector. Specifically, there has been a reported decline in equivalent unit volumes across various categories, with a 4% drop in wine, a 1.5% decrease in spirits, and a 5.5% fall in beer over the latest 13-week period.
In light of these market trends, BofA Securities has also adjusted its target enterprise value to EBITDA multiple for O-I Glass, bringing it down to approximately 6 times from the previous range of 6 to 7 times. Additionally, the firm has revised its normalized free cash flow estimate for the company to $250 million from the previous $350 million.
BofA Securities has indicated that until there is an improvement in growth, it will be challenging for O-I Glass to achieve a rerating in the market. This forecasted difficulty in market revaluation reflects the broader industry challenges faced by glass packaging companies amid changing consumer preferences and competitive pressures.
InvestingPro Insights
As investors digest the recent rating change by BofA Securities for O-I Glass Inc. (NYSE: OI), it's valuable to consider additional insights from InvestingPro. Notably, the company's management has been actively buying back shares, a move that often signals confidence in the company's future prospects. Additionally, despite not being profitable over the last twelve months, analysts are optimistic, predicting profitability for the company this year.
InvestingPro Data shows O-I Glass with an adjusted market capitalization of $2.4 billion and a forward-looking P/E ratio based on the last twelve months as of Q4 2023 at 5.35, suggesting a potential undervaluation relative to earnings. The company's revenue growth has been modest at 3.63% over the same period, with a gross profit margin of 21.06%. Moreover, the EBITDA growth stands out at 25.3%, indicating an improvement in the company's operational efficiency.
For those considering an investment in O-I Glass, it could be worthwhile to explore the additional 30 InvestingPro Tips available on the platform. These tips provide deeper analysis and could help in making a more informed decision. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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