Credit Suisse: Owens Illinois 'Momentum About To Turn'

Credit Suisse upgraded Owens-Illinois Inc OI from Neutral to Outperform and raised its price target from $26 to $32.

Analyst Lars Kjellberg felt that the company’s momentum was about to turn after being “hard hit by a series of consensus EPS downgrades over the past 12 months, accumulating a downgrade of 36 percent.”

The downgrades had been “triggered by a combination of declining sales volumes due to weak packaging markets and glass losing share to other packaging substrates, now resolved operational issues and significant FX headwinds,” according to Kjellberg.

The analyst believed that the company’s earnings had bottomed and anticipated a “directional shift” in volumes due to new contracts in Europe, Australia and Mexico.

The incremental volume was expected to shift earnings momentum from negative to positive and enable the company to bring benefits from cost savings and restructuring to the bottom line, according to the analyst note.

Kjellberg wrote that on a constant currency base, EPS momentum would shift from -10 percent in H1-15 to +25 percent in H2-15. Including FX, the analyst expected flat YoY EPS in H2 and CAGR 2016/17 EPS growth of nearly 13 percent “from a combination of improving volumes and cost improvements.”

The next catalyst was expected to be the Q2 2015 financial results on July 29.

The $32 price target was based on the average of the firm’s DCF valuation and applied a P/E of 12.8x and an EV/EBITDA multiple of 6.7x on estimated 2016 results.

Kjellberg expected 2015 EPS at $2.24 on revenue of $5.71 billion.

Owens-Illinois Inc recently traded at $24.91, up 2.76 percent.