2023-08-10 13:40:28 ET
Summary
- O-I Glass reported a 20% YoY increase in adjusted earnings and forecasts further improvement in 2024 due to expansion plans and sustainability efforts.
- The company has boosted revenue despite a decrease in volume, thanks to higher prices and a diverse portfolio of glass packaging solutions.
- O-I Glass has a lower price-to-earnings ratio compared to its peers and may be undervalued, with potential for growth in the glass container industry.
O-I Glass, Inc. ( OI ) is one of the leading glass packaging companies globally and has rewarded investors with returns of 47.08% over the last year. It has an attractive price-to-earnings ratio of 6.30 and very little short interest at 1.76%. Earlier this month, it released its Q2 2023 Earnings report , beating EPS and revenue expectations, although sales volume has decreased due to lower consumer consumption . Since the earnings call, we have seen the stock price drop in value, well below its average price target of $26.10 .
Despite challenging conditions, O-I Glass reported a 20% YoY increase in adjusted earnings to $0.88 per share, driven by margin improvement efforts. O-I Glass forecasts FY 2023 adjusted earnings between $3.10 and $3.25 per share, with ongoing improvement expected in 2024 due to expansion plans, technological advancements and benefiting from the push towards sustainability. Therefore, investors may want to take a bullish stance on the stock.
Company overview
O-I Glass was founded in 1929 and plays a significant role in manufacturing glass containers for over 6000 customers through 69 factories across the globe. Their revenue stems from a diverse portfolio of glass packaging solutions catering to beverage, food, and consumer goods sectors. O-I Glass focuses on technological advancements and emphasises sustainability and customer collaboration to meet packaging needs while minimising environmental impact.
It is evident that the company has boosted its revenue across both its Americas and Europe segments and in all categories. Despite a decrease in volume, higher prices have resulted in an overall increase in total revenue.
Q2 2023 versus Q2 2022 revenue (Sec.gov)
Growth catalysts and challenges
The expansion projects of the company, which involve the introduction of lightweight ULTRA technology , are expected to fuel growth. Margin expansion efforts are also likely to contribute to future profitability. However, there are challenges such as market volatility caused by inventory destocking and macroeconomic factors, which could have a short-term impact on performance.
While the company will continue to deal with lower sales volume and higher costs due to the decrease in demand in the short term, management has tightened the forecast for FY23 to an adjusted EPS of between $3.10 and $3.25.
FY guidance forecast (Investor presentation 2023)
Financials and valuation
O-I Glass has seen its sales volume decline due to lower consumption and inventory stocking. However, the company has increased its operating profit margins by 270 basis points to around 17.5% through astute cost management and strategic expansion. The ongoing capacity additions and expansion projects are poised to contribute positively to future revenue growth.
Quarterly income statement (Marketscreener.com)
Moreover, when we examine the company's quarterly earnings history, we can observe that they have surpassed expectations for the past twelve quarters in a row.
The company has a high total debt intake of $5.02 billion, and total cash is $754 million. However, it is one of the key improvements, with an FY 2023 target to reduce the net debt leverage ratio to <3.0x. Currently, it is at 3.1x for Q2 2023. However, this is a significant improvement from one year prior, with the leverage ratio at 4.0. Levered free cash flow was positive at $114.63 million, and the FCF ratio has improved by 31%. T
Key financial metrics (Investor presentation 2023)
O-I Glass is currently trading below its average price target of $26.10. Despite having low coverage, several Wall Street analysts have given it a buy rating of 4.2. According to Seeking Alpha's Quant rating, the stock has a B+ valuation with an attractive FWD price-to-earnings ratio of 6.35, which is lower than the Material sector median of 13.79 . Additionally, the stock has outperformed the S&P Index in the past year and month, but has decreased in value over the last six months.
Comparing the stock's valuation to peers like Ardagh Group ( AMBP ), Verallia ( OTCPK:VRLAF ), and Vidrala ( OTCPK:VDRFF ), we can see that the company has a lower price-to-earnings ratio compared to its peers. We can also see that the price-to-sales ratio is well below one dollar, indicating that investors pay less than a dollar for every dollar earned. Considering the temporary headwinds and its future growth potential from new technologies, O-I Glass could be undervalued at its current stock price.
Risks
This is a global company that has factories all over the world. It is important for investors to keep in mind that external factors, such as geopolitical issues, could affect the company's performance. There may be short-term market fluctuations due to inventory reduction and uncertainties in the overall economy. Furthermore, there are risks associated with the implementation of expansion plans and new technologies, which could also impact the company's success. Investors should carefully consider these risks when evaluating the company's long-term growth potential.
Final thoughts
O-I Glass has been able to surpass EPS expectations for twelve consecutive quarters, despite facing macroeconomic challenges that have led to lower sales volume. The company's focus on sustainability and strategic expansion, along with a positive market outlook for FY 2023 and 2024, indicate that the stock may be undervalued and have potential for growth. Despite difficulties, the company's growth prospects look promising due to its expansion efforts and innovative technologies, as well as the projected growth of the glass container industry. Therefore, investors may want to take a bullish stance on this stock.
For further details see:
O-I Glass: Navigating Challenges And Unlocking Growth In Glass Packaging Industry