BMO Turns Bullish On Greif, Says Most Business Units Appear 'Solid'

Greif, Inc. GEF has seen its stock sharply pull back over the past few months, which could be an attractive entry point for investors.

The Analyst

BMO Capital Markets' Mark Wilde upgraded Greif's stock from Market Perform to Outperform with a price target lifted from $57 to $60.

The Thesis

Greif, a leading global producer of industrial packaging, has seen some weakness in its rigid container business in late December, Wilde said in a note. But conversations with the company's management team pointed to a recovery in January that strengthened in February.

In addition, several other business units appear "solid." The paper packaging business faces a headwind from both a $50 per ton increase in containerboard prices. The analyst noted four new industrial bulk container operations in both North America and Europe should start yielding results in 2019

Meanwhile, Greif's $450 million of high coupon senior notes mature in 2019 and can be financed at that time, which could result in an annual interest reduction expense of $10 to $11 million a year, the analyst said. The company also stands to benefit from lower U.S. corporate tax rates as 60 percent of its taxable income is realized domestically.

Since the company appears to be on track to achieve its 2018 EPS target of $3.25 to $3.55 and free cash flow target of $200 to $220 million, Wilde said the risk to reward profile is skewed to the upside.

Price Action

Shares of Greif were trading lower by 1.4 percent Monday.

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