Ball Corp Growth Outlook Remains Robust; Buy with Target Price of $110

Morgan Stanley raised their stock price forecast on Ball Corporation to $110 from $87 after the leading beverage can maker reported better-than-expected profit in the third quarter, assigning an “Overweight” rating and said it continues to see robust multiyear growth in all key regions.

On Thursday, the Westminster-based aluminium can manufacturer and the aerospace company reported profits of $241 million, or 72 cents per share in the third quarter, on sales of $3.1 billion, versus 2019’s profits of $92 million, or 27 cents per share, from sales revenue of $3.0 billion.

Ball reported third-quarter 2020 adjusted earnings of 89 cents per share, beating market expectations of 77 cents.

“Our revised price target of $110 from $87 previously is based on a DCF framework to better capture the robust multiyear growth outlook beyond 2021. Our $110 price target implies EV/EBITDA multiples of 19x 2021E EBITDA and 17x 2022E EBITDA. Our DCF is based on a five-year explicit forecast, a 2.5% perpetual growth, and a 6.5% WACC,” said Neel Kumar, equity analyst at Morgan Stanley.

“Our 2020e EBITDA increases from $1,907M to $1,936M (EPS from $2.79 to $2.94) and 2021e EBITDA from $2,117M to $2,218M (EPS from $3.22 to $3.44). Our higher estimates are driven primarily by increased earnings across all of the beverage can segment to reflect stronger volume growth and margins. In the Other segment, we now estimate breakeven earnings in 2021 for the aluminium cups business vs. the $20M of standup costs in 2020. Our aerospace estimates remain largely intact as we continue to expect 15% earnings growth in 2021+,” Kumar added.

Ball Corp’s shares closed 0.38% higher at $97.46 on Friday; the stock is up over 50% so far this year.

Morgan Stanley gave a target price of $134 under a bull scenario and $73 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Ball had its price objective raised by Credit Suisse to $120 from $105.

Citigroup upped their price target to $104 from $86. Robert W. Baird lifted their price target to $100 from $85 and gave the stock an outperform rating. BMO Capital Markets upgraded to an outperform rating from a market perform and lifted their target price to $107 from $70.

Fifteen analysts forecast the average price in 12 months at $94.00 with a high forecast of $132.00 and a low forecast of $70.00. The average price target represents a -3.55% decrease from the last price of $97.46. From those 15, ten analysts rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

“Market leader with 33% global share in the consolidated, growing, and non-cyclical beverage can industry. We expect Ball to benefit from a robust multiyear beverage can growth outlook in all its key regions,” Morgan Stanley’s Kumar added.

“Near and long-term catalysts than can drive upside to estimates including substantial new capacity over the next several years to meet the significant acceleration in beverage can demand, commercial initiatives to improve price/mix, margin accretion from improving operating leverage, a rapidly growing backlog within its aerospace segment, and the new aluminium cup business.”

Check out FX Empire’s earnings calendar