AMCR: Cost Synergies From Berry Deal Will Drive Medium-Term Upside

Key Takeaways

• Strategic acquisitions, portfolio optimization, and sustainability initiatives strengthen market position, margin expansion, and consistent earnings growth.
  
• Broadened footprint in high-growth regions and markets enables Amcor to capture rising demand and evolving industry trends.
  
• Weak consumer demand, portfolio uncertainty, and high leverage constrain growth, margin expansion, and financial flexibility while increasing risks around asset sales and shareholder returns.

Catalysts

Develops, produces, and sells packaging products in Europe, North America, Latin America, and the Asia Pacific.

• The integration of Berry Global with Amcor is expected to yield $650 million in synergies by fiscal 2028 (with $260 million in fiscal 2026), primarily through cost reduction, procurement optimization, and operational efficiencies, which should support sustained EPS and margin expansion.
  
• Amcor's enhanced geographic exposure in Asia-Pacific and Latin America, combined with a strategic focus on high-growth health and nutrition end markets, positions the firm to capitalize on increasing demand from a rising global middle class and urbanization, likely benefiting future revenue growth.
  
• The company's leadership and continued investment in sustainable, recyclable, and reusable packaging solutions aligns Amcor with strengthening regulatory and consumer demand for eco-friendly products, enabling market share gains and price premiums, supporting both revenue and margin improvement.
  
• Ongoing portfolio optimization, with planned divestiture or restructuring of lower growth or less scalable businesses, will increase the company's exposure to stable, higher-growth sectors, enhancing the consistency and quality of earnings and free cash flow.
  
• The combined product and technology portfolio following the Berry acquisition allows Amcor to address evolving e-commerce and home delivery trends, offering advanced packaging solutions suited to these markets, which can drive incremental volume and revenue opportunities over the medium to long term.

Amcor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amcor's revenue will grow by 17.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $0.72) by about September 2028, up from $510.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $1.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, down from 37.0x today. This future PE is greater than the current PE for the AU Packaging industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.45%, as per the Simply Wall St company report.

Amcor Future Earnings Per Share Growth

Risks

• Persistent volume declines and ongoing weak consumer demand in major segments, particularly North America, raise concerns about the company's ability to return to organic revenue growth, limiting top-line expansion and potentially pressuring earnings if secular consumption trends remain subdued.
  
• The North American beverage business, now identified as non-core and underperforming with operational challenges and elevated costs, represents a significant drag on net margins and earnings, with uncertainty surrounding the timing and terms of any divestiture.
  
• Approximately $2.5 billion of annual sales (including 10 businesses plus North American beverage) are under portfolio review due to low growth, margin, scale, or unfavorable industry structure, increasing the risk of asset sales at discounted valuations or restructuring costs that could negatively impact future profitability.
  
• Even with targeted synergy capture from the Berry Global acquisition, Amcor is relying on "self-help" actions to drive earnings growth amid expectations for flat volumes, suggesting limited margin expansion if integration targets are not fully met or if synergy realization is slower or costlier than planned.
  
• High leverage (3.5x, above stated target range), increased capital expenditure, and the prioritization of deleveraging over growth investments or buybacks constrain financial flexibility, and could delay shareholder returns if cash flows fall short, asset sale proceeds are less than anticipated, or macro conditions worsen.

Valuation

• The analysts have a consensus price target of $10.91 for Amcor based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.3 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 7.4%.
• Given the current share price of $8.19, the analyst price target of $10.91 is 24.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.