Ball Corporation BLL's fourth-quarter earnings highlight strength in global beverage can demand and indicate that significant upside can be expected from the company’s contract renegotiations in 2020 and beyond, according to Morgan Stanley.
The Analyst
Analyst Neel Kumar maintains an Overweight rating on Ball Corp. with an unchanged $55 price target.
The Thesis
Ball is a leader in the beverage can space, with a global market share of around 33 percent and sales exposure of about 86 percent, Kumar said in a Monday note.
The company reported around 4-percent growth in global beverage can volume in Q4, despite flat-to-down beverage consumption. Volume growth was driven by 4-percent growth in North America and 10-percent growth in Europe, with both these regions showing solid demand for specialty cans.
About 15-20 percent of Ball's contract volumes are scheduled to commence in 2020 and beyond, Kumar said. During the Q4 earnings call, the company indicated that most of its negotiations for the next 18 months are “largely concluded" and possibly at better terms, he said.
The analyst estimates that a 5-percent increase in the price of Ball’s 12-ounce cans alone could result in an additional $31-$51 million, representing 2-3 percent of EBITDA.
This does not take into account any benefit from a favorable mix shift to specialty cans, a rapidly growing segment with higher margins than commodity cans, according to Morgan Stanley.
Price Action
Ball Corp. shares were trading up slightly at $52 at the time of publication Tuesday.
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