On Friday, RBC Capital made an adjustment to its outlook on Berry Global Group (NYSE:BERY), reducing the stock's price target to $72 from the previous $81. The firm has kept its Outperform rating on the shares intact.
A key factor influencing the revised price target is the application of a lower valuation multiple. The new target is based on a 7.5x multiple, a decrease from the previously applied 8x multiple. This adjustment reflects the structure of the recently announced tax-free spinoff of Berry Global's Health, Hygiene & Specialties (HHS) business. After the spinoff, Berry Global shareholders are set to retain a 90% interest in the newly formed company.
The decision to not completely separate HHS has also been factored into the valuation.
The revision comes amid a backdrop where Berry Global has demonstrated solid operating performance despite facing demand challenges. The company's initiatives to manage price and cost are expected to yield approximately $140 million in run-rate benefits.
The analyst from RBC Capital highlighted Berry Global's robust free cash flow projections, estimating between $800 million and $900 million for the fiscal year 2024. This financial health is anticipated despite a reduction in the forecast for the second fiscal quarter. Nonetheless, the firm's expectations for the full fiscal year 2024 EBITDA remain unchanged, supported by the company's own guidance for a stronger recovery in the second half of the year.
InvestingPro Insights
InvestingPro data paints a detailed picture of Berry Global Group's (NYSE:BERY) current financial standing. With a market capitalization of $6.61 billion and a P/E ratio that has adjusted to a more attractive 10.1 over the last twelve months as of Q1 2024, the company appears to be in a relatively strong position. This is further supported by a solid revenue stream of $12.46 billion, despite a revenue decline of 10.91% over the same period.
One of the key InvestingPro Tips for Berry Global is the aggressive share buyback management has been undertaking. This is often a sign of confidence from the company's leadership in its future prospects and can be a positive signal to investors. Additionally, the company's stock is currently trading near its 52-week low, which, coupled with a strong free cash flow yield, may present a value opportunity for investors.
For those considering an investment in Berry Global, there are more InvestingPro Tips to explore, including insights on shareholder yield and the stock's RSI indicating it may be in oversold territory. In total, there are 9 additional tips available on InvestingPro for Berry Global, which can be accessed at https://www.investing.com/pro/BERY. Investors looking to delve deeper into these insights can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Finally, it's worth noting that analysts predict the company will remain profitable this year, and the stock has been profitable over the last twelve months. This aligns with the positive outlook from RBC Capital, despite the recent adjustment to Berry Global's price target.
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