Acquisition To Be Long-Term Growth Driver For Berry Plastics, Says Barclays

Although near-term value for Berry Plastics Group Inc BERY is expected to be driven by deleveraging, Barclays’ Scott L. Gaffner believes the company “was, is, and likely will be an acquisition driven roll-up into the future.”

Gaffner re-initiated coverage of the company with an Overweight rating and price target of $45.

Near-Term Deleveraging

“Recent investor discussions have focused on deleveraging and subsequent equity accretion. We agree that this is a strong short-term value driver, but ultimately, another acquisition is likely to materialize starting the leverage cycle anew,” the analyst explained.

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Gaffner pointed out that robust cash flow generation and the consequent reduction in debt offer a near-term value proposition for investors, given that a full turn of deleveraging could lead to equity accretion of $10.

Long-Term Growth

The analyst believes acquisitions would continue to be a long-term growth driver for Berry Plastics.

“Berry's acquisition acumen is a primary point of differentiation in a highly fragmented global plastic packaging market. As a private company, Berry drove 20+ percent growth in revenues and EBITDA as it sought to identify and integrate targets,” according to the Barclays report.