Share Repurchases And New Aluminum Facilities Will Shape Future Success

Key Takeaways

• Strategic share repurchases and acquisitions are expected to drive growth, enhance capacity, and improve earnings per share without impeding investment plans.
  
• Revenue growth will be supported by the shift to aluminum cans and contract renewals, securing stable demand and improved margins.
  
• Economic pressures and supply chain challenges in North and South America may negatively impact Ball's revenue and earnings growth.

Catalysts

Supplies aluminum packaging products for the beverage, personal care, and household products industries in the United States, Brazil, and internationally.

• Ball Corporation plans to drive growth through significant share repurchases, targeting at least $3 billion between 2024 and 2025, which is expected to significantly enhance earnings per share.
  
• The company is confident in achieving 11% to 14% comparable diluted EPS growth in 2025, driven by projected global volume growth in the 2% to 3% range and operational efficiency improvements, positively affecting net margins.
  
• Ball expects the continued shift of customers from other substrates to aluminum cans across EMEA to support long-term growth due to sustainability advantages, which should bolster revenue.
  
• Strategic acquisitions and investments, like the purchase of a Florida can manufacturing facility, are expected to enhance capacity and provide growth opportunities without impacting their share repurchase plans, thus supporting future revenue and earnings.
  
• Contract renewals with major customers and the development of new facilities, such as the Oregon plant, are expected to secure stable future demand and provide additional avenues for revenue growth and margin improvement.

Ball Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Ball compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Ball's revenue will grow by 4.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.6% today to 8.3% in 3 years time.
• The bullish analysts expect earnings to reach $1.1 billion (and earnings per share of $4.25) by about April 2028, up from $424.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, down from 32.2x today. This future PE is lower than the current PE for the US Packaging industry at 20.8x.
• Analysts expect the number of shares outstanding to decline 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 6.63%, as per the Simply Wall St company report.

Ball Future Earnings Per Share Growth

Risks

• Persistent economic pressures on end consumers in North America have led to softer-than-expected volume in the region, which could negatively impact future revenues and earnings.
  
• The weaker-than-anticipated volume in Argentina and supply-demand tightness in Brazil due to slower-than-expected capacity ramp-up indicate potential risks to volume and revenue growth in South America.
  
• Concerns about tariffs and potential impacts on aluminum supply chains, as mentioned in the context of shipments from Mexico, could lead to increased costs and pressure on net margins.
  
• The continued softness in the U.S. mass beer category and a strained consumer spending environment might limit volume growth and thus affect revenue expansion.
  
• Macroeconomic volatility and a dynamic economic situation in Argentina pose uncertainty, potentially creating adverse impacts on revenue and earnings stability.

Valuation

• The assumed bullish price target for Ball is $75.54, which represents two standard deviations above the consensus price target of $59.71. This valuation is based on what can be assumed as the expectations of Ball's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $83.0, and the most bearish reporting a price target of just $44.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $13.4 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 6.6%.
• Given the current share price of $48.37, the bullish analyst price target of $75.54 is 36.0% 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.