BALL Stock Study (9-13-23)
Posted by Mark on October 20, 2023 at 06:49 | Last modified: September 13, 2023 11:33I recently did a stock study on Ball Corp. with a previous closing price of $51.88/share.
Value Line writes:
> Ball Corporation manufactures metal and plastic packaging (87%
> of sales), primarily for the beverage and food industries for a
> variety of end users around the world. It has 18 locations in the
> United States and 51 facilities internationally. The company also
> supplies government and commercial customers with aerospace and
> other high-technology products (13%). Its largest product line
> is aluminum beverage containers. Acquired Rexam, 6/16.
Over the past decade, this large-size company has grown sales and earnings at annualized rates of 7.2% and 8.2%, respectively. Lines are somewhat up, straight, and parallel except for sales declines in ’15 and ’19 and EPS declines in ’15, ’16, and ’22 [I don’t like to see five years pass before ’14 EPS is finally eclipsed; I should consult the 10-K about this]. PTPM lags peer and industry averages while trending slightly down from 6.9% in ’13 to 5.8% in ’22 with a last-5-year mean of 5.9%.
Also over the past decade, ROE lags peer and industry averages while trending down from 34.4% in ’13 to 20.3% in ’22 with a last-5-year mean of 18.2%. Debt-to-Capital is higher than peer averages and about even with the industry while ranging from 63.9% in ’17 to 80.4% in ’15 with a last-5-year mean of 70.6%.
Interest Coverage is 3.3 and Quick Ratio is 0.5. Value Line gives an B++ rating for Financial Strength. M* gives a “Standard” rating for Capital Allocation and writes:
> Ball’s balance sheet is sound, in our view. We believe the firm’s
> leverage is reasonable considering the overall stability of revenue
> and earnings in this industry. Although debt has risen in recent
> years, management has reiterated its commitment to maintain
> reasonable leverage, and we expect the firm to pay down its debt
> in the coming years.
With regard to sales growth:
- CNN Business projects 1.3% YOY contraction and 1.6% growth per year for ’23 and ’22-’24 (based on 13 analysts).
- YF projects YOY 4.8% contraction and 3.3% growth for ’23 and ’24, respectively (13 analysts).
- Zacks projects YOY 4.2% contraction and 4.0% growth for ’23 and ’24, respectively (4).
- Value Line projects 3.2% growth per year for ’22-’27.
- CFRA projects 3.4% YOY contraction and 2.0% growth per year for ’23 and ’22-’24, respectively.
- M* provides an annualized ACE of 2.1% contraction for the next 2 years.
I am forecasting toward the lower end of the range at 1.0% per year.
With regard to EPS growth:
- CNN Business projects 9.4% YOY and 12.2% per year for ’23 and ’22-’24, respectively (based on 13 analysts), along with 5-year annualized growth of 9.5%.
- MarketWatch projects 7.7% and 8.2% per year for ’22-’24 and ’22-’25, respectively (15 analysts).
- Nasdaq.com projects 11.9% YOY and 10.5% per year for ’24 and ’23-’25 (5, 5, and 3 analysts for ’23, ’24, and ’25).
- YF projects YOY 24.6% contraction and 10.8% growth for ’23 and ’24, respectively (12), along with 5-year annualized growth of 3.1%.
- Zacks projects YOY growth of 9.0% and 11.9% for ’23 and ’24 (5) along with 5-year annualized growth of 5.0%.
- Value Line projects 12.5% growth per year from ’22-’27.
- CFRA projects growth of 11.9% YOY and 12.5% per year for ’23 and ’22-’24 along with a 3-year CAGR of 15.0%.
- M* projects long-term growth of 8.9% per year.
I am forecasting toward the bottom of the long-term-estimate range (mean of five: 7.8%) at 4.0% per year. I will use ’22 EPS of $2.25/share as the initial value rather than 2023 Q2 EPS of $2.52 (annualized).
My Forecast High P/E is 36.0. Over the past decade, high P/E trends up from 19.0 in ’13 to 43.3 in ’22 with a last-5-year mean of 45.5. The last-5-year-mean average P/E is 36.0. I am using the historical average as my forecast high.
My Forecast Low P/E is 16.0. Over the past decade, low P/E ranges from 14.5 in ’14 to 38.2 in ’16 with a last-5-year mean of 26.5. The last-10-year median is 28.0. I am forecasting toward the bottom of the range [only ’14 and ’13 (15.2) are lower].
My Low Stock Price Forecast (LSPF) of $36.00 is default based on $2.25/share initial value. This is 30.6% less than the previous close and 21.7% less than the 52-week low.
Over the past decade, Payout Ratio has increased from 19.0% in ’13 to 35.6% in ’22 with a last-5-year mean is 32.0%. I am forecasting near the bottom of the range at 19.0% [only ’14 (15.8%) is lower].
These inputs land BALL on the precipice with a U/D ratio of 2.9. Total Annualized Return (TAR) is 14.2%.
PAR (using Forecast Average—not High—P/E) is 7.3%, which is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the total annualized return (TAR) of 14.2% instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 38 studies (my study and 14 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 5.8%, 9.6%, 37.2, 23.9, and 32.0%. I am lower across the board. Value Line’s projected average annual P/E of 25.0 is lower than MS (30.6) and mine (26.0).
MS high / low EPS are $3.42 / $2.13 vs. my $2.74 / $2.25 (per share). My high EPS is lower due to a lower growth rate. Value Line and M* project [high EPS of] $5.00 and $3.45, respectively: higher than MS and me.
MS LSPF of $45.80 implies a Forecast Low P/E of 21.5: greater than the above-stated 23.9. MS LSPF is 10.0% less than the default $2.13/share * 23.9 = $50.91, which results in more conservative zoning. MS LSPF remains 27.2% above mine.
My TAR (over 15.0% preferred) is less than the 19.7% from MS.
MOS backing the current study seems robust. Despite the limited MS sample size, comparisons with other analyst estimates are also favorable.
I track a few different valuation metrics. PEG is 3.4 and 4.9 per Zacks and my projected P/E, respectively: both significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is quite cheap at 0.6. Kim Butcher’s “quick and dirty DCF” prices the stock at 18.0 * [$7.85 – ($1.00 + $4.65)] = $39.60, which suggests the stock to be 23.7% overvalued.
BALL is a BUY under $51. With a forecast high price of $98.50, TAR should meet my personal criterion at or below $49/share.
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