Wells Fargo Upgrades Crown Holdings: 'We See Potential Upside To Both Earnings And Cash Flow' - Crown Holdings (NYSE:CCK)

Metal can manufacturer Crown Holdings Inc. CCK delivered strong third-quarter earnings last week that surpassed estimates.

The Analyst

Wells Fargo analyst Gabe S. Hajde upgraded Crown Holdings from Market Perform to Outperform and raised the price target from $50 to $60.

The Thesis

Investors will likely benefit from Crown Holdings' multiple capital return projects and contributions from continued volume growth across can operations, Hajde said in the Monday upgrade note.

The analyst also anticipates strength going into 2019.

“For 2019, we see potential upside to both earnings and cash flow stemming from normalized European crop yields, the non-recurrence of suboptimal freight in North America beverage and ongoing refinement of beverage can contracts.”

Some key points in Hajde’s upgrade include debt reduction and the recently completed Transit Packaging acquisition. Crown Holdings’ $600 million in free cash flow should reduce debt and generate as much as a 10-percent return to shareholders, he said.

The company plans to showcase a Transit Packaging facility in Cincinnati, Ohio, the analyst said.

“The Transit Packaging business is more cyclical than CCK’s legacy beverage can operations; however, we believe the business can deliver more stable results through an economic downturn (versus the 2008-09 timeframe) given an improved business mix and broader installed equipment basis.”

A recession analysis points to Crown having the ability to generate $500 to $550 million in free cash flow in a recessionary environment, Hajde said. The company's FCF gives it optionality in monetizing its North American tinplate operations, he said.

Price Action

Crown Holdings shares were down 0.77 percent at $45.04 at the time of publication Monday.

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