Citi's Preferred Name In Packaging With ~22% Upside

• Shares of Berry Plastics Group Inc BERY have declined 9.51 percent year-to-date.
• Citi’s Anthony Pettinari has reinitiated coverage of Berry Plastics with a Buy rating and price target of $35.
• Pettinari named the stock as Citi’s Preferred Name in Packaging, while seeing 22 percent upside to the stock valuation.

“Following the recent stock pullback we see BERY in a similar position to 2012-13: generating a double-digit FCF yield and poised to outperform assuming steady execution and deleveraging,” the Citi report said, while mentioning that the stock valuation was attractive at present.

Pettinari expects the company to deliver modest free cash flow accretion in FY16, which would then ramp to over 12 percent in FY17, “as integration spend rolls off.” In addition, Berry Plastics is expected to benefit from synergies from the AVINTIV acquisition at $50 million.

Given the company’s experience with more than 30 different acquisitions, Pettinari expressed optimism regarding Berry Plastics’ integration capabilities, while mentioning that there could be upside to the synergy estimates.

However, the company is also expected to see some macro headwinds, “as investor appetite for a leveraged Materials name may diminish if markets deteriorate,” the report stated, while adding that the risk appeared balanced by the company’s “defensive end market exposures & low maintenance capex.”