Is Ball Corporation (BLL) Worth Adding to Your Portfolio?

On Nov 23, 2015, we issued an updated research report on Ball Corporation BLL. The company is poised to benefit from continuous focus on cash flow and investments. Product launches and expansion in the emerging markets will also drive growth. However, its performance will be hurt by unfavorable foreign exchange, elevated aluminum premiums and uncertainty surrounding government funding programs.

Notably, Ball Corporation remains focused on ramping up capital projects. The company expects capital expenditure to be around $500 million in 2015. Profitability of Ball Corporation's business will grow driven by investment and focus on continuous improvement. In addition, capital projects will become operational and largely benefit in 2016 and beyond, including the next generation aluminum bottle-shaping technology in North America.

Further, the construction of Monterrey, Mexico two-line aluminum beverage can facility is on track and on budget and will become operational by early 2016. The construction of a new beverage can plant in Myanmar is also progressing and is slated to open in early 2016. Ball Corporation's new U.S. tinplate aerosol can manufacturing technology shipped its first commercial product in November. These projects will aid Ball Corporation's growth.

In October, Ball Corporation reached an agreement with its joint venture partners in Brazil to acquire their remaining 39.9% minority interest in the Latapack-Ball beverage can business in exchange for the issuance of its 6 million shares. The buyout will allow it to further leverage, simplify and streamline its business in Brazil, as well as across the broader metal beverage business. The transaction is subject to customary approvals and is expected to close no later than the first quarter of 2016.

Ball Corporation's pending acquisition of Rexam PLC REXMY in a cash and stock deal valued at $8.4 billion will create the world's largest manufacturer of food and beverage cans. Ball Corporation expects the deal to result in synergies of $300 million by 2018 in the areas of general and administrative, sourcing, freight and logistics, and process and efficiency savings. The combination is expected to be accretive to earnings per share within the first year of completion.

Moreover, Ball Corporation remains on track with its Drive for 10 vision, launched in 2011, which encompasses five strategic levers that are key to growing business and achieving long-term success.

However, Ball Corporation presumes currency translation, start-up and preproduction costs to remain headwinds for the balance of the year.

The company entered into interest rate swaps to hedge against rising U.S. and European interest rates to minimize its interest rate exposure associated with anticipated debt issuances regarding the Rexam acquisition. The economic hedges will help the company to secure the transaction's purchase price economics, though they will likely continue to cause disruption to quarterly GAAP earnings and could accumulate to a sizable figure given currency rate volatility and the projected timeline associated with the proposed transaction.

Over the past 30 days the Zacks Consensus Estimate for Ball Corporation increased around 4% to $3.42 per share for fiscal 2015, while the same reduced 0.3% to $3.66 per share for fiscal 2016.

At present, Ball Corporation carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same sector include Advanced Emissions Solutions, Inc. ADES and Belden Inc. BDC, both carrying a Zacks Rank #2 (Buy).

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