(Amcor) (AMCR)
Overview of the Company - Amcor develops, produces, and sells packaging products for food, beverage, pharmaceutical, and other products. They are headquartered in Switzerland and also develop flexible packaging solutions.
Fundamental Analysis - Every economy in the world needs packaging and relies on transportation of their goods. Amcor provides the packaging necessary to package and ship goods. As long as economies are running, companies will rely on Amcor to package their goods.
How (AMCR) Stacks Up to Competitors - We will be comparing Amcor to Westrock (WRK) and Sealed Air Corp (SEE). Westrock sells a larger variety of products, all relating to packaging. Sealed Air Corp is more specialized in the transportation of food and the safety of it during transportation. AMCR and SEE both have around a 10% profit margin, while Westrock has a negative EPS and profit margin. All three companies have seen over 10% in quarterly year over year revenue growth. However, earnings for AMCR and WRK have seen about 40% in earnings growth for the quarter while SEE lags the group at 8%. All three companies have a lot of debt in comparison to their cash, however AMCR and WRK trade pretty close to their book value. SEE however has a very low book value in comparison to its price.
Bull Case - The bull case for this company is simple, and steady for this company. It is clear that Amcor is the leader in this industry and has a 4% dividend yield. It trades at a fair valuation and has seen solid earnings growth over the last year. Amcor will not grow at an incredibly fast rate, but they are a solid company that will be in use for the future.
Bear Case - Amcor is a company that will give you a 4% yield and nothing else. There is too much debt and not enough growth for this company to be able to have their stock price go up. With their debt repayments, low profitability and high dividend, cash flow will certainly be an issue for the company. Amcor will not have enough money to reinvest into their business for future growth.
Valuation and My Price Target - With a great recent quarter and guidance pointing down for the coming quarter, Amcor will struggle to maintain its growth for earnings. However I do believe that AMCR will continue to grow and I believe it can achieve $.67 in EPS next year. Multiplied by their current conservative P/E ratio, and you get a price target of $13. This indicates 11% returns. Additionally investors can expect a 4% yield on top of that.
The Verdict - BUY HOLD SELL
By looking through the three companies, it is clear that AMCR beats out the competitors in most categories. Not only that, but AMCR has a 4% dividend yield while WRK and SEE have less than a 2% yield. Amcor does have a lot of mouths it has to feed, but it doesn't necessarily need to put money back into its business. It isn't in a fast growing industry so they are able to pay their dividend and their debts on such a low profit margin. However, with earnings seemingly sustaining the same level, I believe that Amcor will only experience a 11% growth in stock price on the year. With a 4% yield I believe that this will still underperform the S&P and I think there are better opportunities elsewhere. 11% return is not even close to a sell recommendation but it certainly does not warrant a buy. Therefore, Amcor is currently a HOLD.
*all data provided by yahoo finance and nasdaq.com