Berry Global Group, Inc. BERY is poised for robust earnings and free cash flow growth in coming years, driven mostly by the acquisition of RPC Group, according to JPMorgan.
The Analyst
Tyler Langton reinstated coverage of Berry Global Group with an Overweight rating and $66 price target.
The Thesis
Synergies from the RPC acquisition could exceed the target of $150 million and reach as high as $200 million, Langton said in a Tuesday note. (See his track record here.)
JPMorgan’s 2020 and 2021 volume growth estimates for RPC of 1.5% may prove conservative, given that the business generated organic growth close to 3% in recent years, the analyst said.
Langton expressed optimism regarding an upturn in volume growth in HH&S and EM beginning in 2020.
HH&S volumes could improve due to new capacity, and EM volumes may benefit from supply disruptions, he said.
In 2018, Berry Global was unable to pass through $100 million of higher costs, Langton said, adding that he expects the company to recover $50 million of these costs in 2019 and the remaining amount in 2021.
“We believe Berry’s discount to the group should narrow as it pays down debt and generates synergies from the RPC acquisition, sees improving organic volume growth rates, and recovers the higher costs from F2018."
Price Action
Berry Global shares were trading higher by 1.98% at $53.46 at the time of publication Tuesday.
Related Links:
Berry Global Group Summary, Stock Quote and News
Bank of America Downgrades Berry Global Group to Neutral
Photo courtesy of Berry Global.
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