Global Beverage Demand And Efficiency Gains Will Drive Future Success

Key Takeaways

• Strong global beverage operations and enhanced manufacturing efficiencies are driving increased margins and potential future earnings.
  
• Strategic financial maneuvers, including stock buybacks and pension liability transfers, improve earnings per share and financial stability.
  
• High leverage, debt levels, and industry challenges could constrain financial flexibility, impacting revenue, net margins, and earnings across various segments.

Catalysts

Engages in the packaging business in the United States and internationally.

• The company is seeing strong global beverage operations, with a 23% combined segment income increase driven by 5% global volume growth. Enhanced manufacturing efficiencies and reduced spoilage further boost margins, potentially increasing future earnings.
  
• The strategic buyback program of up to $2 billion through 2027, with $110 million repurchased in the quarter, aims to improve earnings per share (EPS) by reducing the share count.
  
• The significant transfer of pension liabilities lowers future cash flow and earnings risk, along with a targeted net leverage decrease to 2.5x, improving financial stability and future profitability.
  
• A projected full-year adjusted free cash flow of at least $750 million provides capital for debt reduction, stock repurchase, or reinvestment, which can enhance shareholder value and earnings.
  
• Anticipated volume recovery in certain regions, especially Asia Pacific, combined with a lower cost structure, is expected to benefit revenue and margins when demand returns.

Crown Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Crown Holdings's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.8% today to 6.5% in 3 years time.
• Analysts expect earnings to reach $849.7 million (and earnings per share of $7.46) by about December 2027, up from $98.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.9x on those 2027 earnings, down from 103.0x today. This future PE is lower than the current PE for the US Packaging industry at 22.9x.
• Analysts expect the number of shares outstanding to decline by 1.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

Crown Holdings Future Earnings Per Share Growth

Risks

• The company recorded a GAAP loss of $1.47 per share in the quarter, mainly due to a noncash pension settlement charge, impacting net margins and earnings.
  
• Segment income was pressured by demand softness across most other businesses outside of the beverage sector, potentially affecting revenue and net margins.
  
• The continuing weakening global manufacturing conditions and contraction in industrial markets negatively affect the transit packaging segment, impacting revenue and overall profitability.
  
• The potential for interest expense as a headwind next year and PPI adjustments favoring customers could affect net margins and earnings.
  
• High leverage and debt levels, coupled with significant cash allocated to debt repayment, may constrain financial flexibility, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $110.44 for Crown Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $129.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $13.1 billion, earnings will come to $849.7 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $85.37, the analyst's price target of $110.44 is 22.7% 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.