ESG Excellence And Sustainability Commitments Propel Aluminum Packaging Leader To New Heights

Key Takeaways

• Ball Corporation's inclusion in the FTSE4Good Index Series highlights its commendable ESG practices, likely appealing to impact investors and positively affecting its stock valuation.
  
• Strong performance in aluminum packaging and shareholder value initiatives like share repurchases and dividends reflect financial health and an optimistic future outlook.
  
• Ball's financial performance is susceptible to market shifts, geopolitical tensions, and regulatory changes affecting revenue, costs, and sustainability efforts.

Catalysts

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

• Incorporation in the FTSE4Good Index Series reflects Ball Corporation's strong ESG practices, likely attracting sustainable and impact investors interested in companies demonstrating commitment to environmental and social governance. This could enhance stock valuation through broader investor interest, potentially impacting the company's market cap and share price positively.
  
• Global beverage can and extruded aluminum aerosol shipments increased by 2.8% and 5.6%, respectively, indicating growing demand for Ball's sustainable packaging solutions. This growth in shipments is expected to drive revenue and net earnings, contributing to an undervalued stock as future earnings potential may not be fully reflected in the current price.
  
• Share repurchase plans and dividends, with approximately $925 million returned to shareholders, signify strong cash flow generation and management's confidence in the company's financial health. This could lead to EPS growth, making the stock attractive to value investors and likely impacting the stock’s market perception as undervalued.
  
• Strong performance in the aluminum packaging sector and expectations for full-year global shipments to grow in the low to mid-single digits range demonstrate solid demand for Ball's products. This demand is anticipated to drive revenue growth and improve net margins through operational efficiencies and leveraging well-capitalized plant assets.
  
• The anticipated growth in comparable diluted EPS in the mid-single digits plus for 2023, along with a strong adjusted free cash flow and a strengthened balance sheet, suggests an optimistic future financial outlook. The expected return of value in excess of $1.6 billion to shareholders via share repurchases and dividends in 2024 indicates a robust financial position and commitment to delivering shareholder value, potentially impacting earnings positively and contributing to the stock's undervaluation.

Assumptions

• Analysts are assuming Ball's revenue will decrease by -1.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $3.85) by about August 2027, up from $693.0 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 21.0x on those 2027 earnings, down from 27.6x today. This future PE is lower than the current PE for the US Packaging industry at 23.7x.
• Analysts expect the number of shares outstanding to decline by 3.65% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.12%, as per the Simply Wall St company report.

Risks

• Exposure to the Argentine market exposes Ball to economic volatility that could impact South American revenues and potentially affect overall financial performance.
  
• Relying on a favorable product mix in North America might pose a risk if consumer behavior shifts or if competitors introduce disruptive products, potentially impacting revenue and market share.
  
• The significant emphasis on operational efficiencies and share repurchase plans as key drivers of EPS growth could be jeopardized by unexpected operational challenges or shifts in market conditions, thereby affecting earnings.
  
• Geopolitical tensions and supply chain disruptions could lead to increased aluminum prices or supply shortages, negatively affecting cost of goods sold and, consequently, net margins.
  
• The reliance on recycled content of aluminum as a competitive advantage could be at risk if regulatory changes or shifts in sourcing availability occur, potentially impacting production costs and sustainability commitments.

Valuation

• The analysts have a consensus price target of $71.06 for Ball 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 $83.0, and the most bearish reporting a price target of just $59.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $13.4 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of $62.95, the analyst's price target of $71.06 is 11.4% 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.