Despite A Slightly Lower Price Target, Citi Still Rates Owen-Illinois At Buy

According to the report published Thursday, the analysts updated their outlook after the company's share prices have lost 12 percent since the Brexit vote. As the company's European exposure constitutes around 38 percent of total sales, the new model was based on expected weaker GDP and softer demand environment in the U.K. and Europe. The analysts see the U.K. real GDP and eurozone GDP declining by 0.4 percent and 0.1 percent, respectively, affected by the Brexit. "Despite trimming numbers, we reiterate our Buy with 27 percent ETR in our Base case, 73 percent upside in our Bull case and 37 percent downside in our Bear case," wrote Citi.

Related Link: Even In A Low-Yield Environment, Municipal Bonds May Nudge Out Other Taxable Assets

The post-Brexit weakness is seen as a good buying opportunity by the analysts, taking into account the following aspects:

1. Lost European pricing (more than 90 percent, as estimated by Citi) has already been set for the year
2. Limited GBP exposure at 2–3 percent of sales
3. Owen-Illinois' defensive beverage and food market exposure
4. Attractive valuation at 10.7 percent '16 FCF yield (vs. 7.5 percent 10-year average)

Citi estimates a $22 base case price target (27 percent ETR), assuming the euro remains at 1.10, European volumes stay flat, prices are slightly down (-50bp) and a 8.0x NTM EBITDA multiple.