Wells Fargo Drops Bullish Stance On Ball Corporation

Shares of Ball Corporation BLL have appreciated 85.5% over one year.

The company seems to have limited upside given its elevated capital spend cycle, expectations of plant start-up costs and the stock’s already premium valuation, according to Wells Fargo.

The Analyst

Gabe Hajde downgraded Ball from Outperform to Market Perform and raised the price target from $68 to $72.

The Thesis

Despite combatting a series of transitory headwinds, like aluminum scrap issues that require contract revisions, start-up costs and unfavorable weather, Ball has been investing significant growth capital and innovating for the future, Hajde said in a Sunday downgrade note.

Aluminum cost headwinds and inefficiencies related to plant start-ups could prevent the company from meeting its 2019 EBITDA target of $2 billion, the analyst said. Contract negotiations and renewals, improved operations and prior capital investments have paved the way for Ball to surpass $2 billion in EBITDA in 2020, he said. 

Hajde expressed optimism regarding acceleration in the company’s earnings and cash flow momentum through the back half of 2019 and into 2020, driven by growth in global beverage can volume, expansion of the aerospace business, fixed cost savings, targeted expansion projects and contract revisions.

Ball plans to invest FCF generated between 2019 and 2021 on buying back shares, according to Wells Fargo.

While there are positives, the stock’s premium valuation could “limit upside potential over the next 6-12 months,” Hajde said. 

Price Action

Ball shares were down 1.37% at $73.70 at the time of publication Monday. 

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