UPDATE: Goldman Sachs Upgrades Owens-Illinois to Buy on Valuation, Capital Allocation

Goldman Sachs raised its rating on Owens-Illinois

from Neutral to Buy and increased its price target from $20 to $28. Goldman Sachs noted, "We are upgrading Owens-Illinois (OI) to Buy, as we believe the recent change in capital allocation strategy ushered in by the new CFO will drive OI's EV/EBITDA multiple back to historical average levels. At a recent conference, OI explicitly committed to utilizing 90% of its FCF over the next two years for debt reduction vs. a previous focus on M&A. We forecast OI's net debt/LTM EBITDA ratio will decline to 2.3X by year-end 2013 from 2.8X currently, which we believe will boost OI's forward EV/EBITDA back to its five-year average of 6.0X vs. 5.0X currently. We raise our 12-month price target to $28 (45% upside) from $20 as we move our target 2013 EBITDA multiple up to 6.0X vs. 5.0X given greater clarity on capital allocation. Owens-Illinois closed at $19.36 on Thursday.