Stability Amidst Turmoil
The stock market, as a whole (and some of us feel like we have stepped in one), has been rather volatile of late. The small caps are getting punished and concerns of a slowdown in Europe are starting to make their way across the pond. This is the perfect time to take a closer look at a company and stock that is much more stable and reliable.
Berry Plastics Group makes and sells plastic consumer packaging and engineered materials in the United States, Canada, Mexico and several other countries around the world. The company operates in four segments: Rigid Open Top, Rigid Closed Top, Engineered Materials, and Flexible Packaging. Berry Plastics Group was founded in 1967 and is headquartered in Evansville, Indiana.
Earnings History
Although this is a conservative, more reliable play, two of the last six quarters were misses. Of course that means 4 were beats, but I would still like to see some more consistent performance here. That said the beats were big and the misses were small.
The most recent quarter was reported on August 1, and the company reported earnings of $0.51, fully $0.15 ahead of the $0.36 Zacks Consensus Estimate. The beat of 41% was no thanks to revenue that came in about 1% below expectations at just about $1.3B. It was the first topline miss in 3 quarters and the stock barely moved higher, gaining only 1.5% in the session following the release.
Revenue Expectations and Price
The Zacks Rank focuses on earnings estimates, but I want to show you what it looks like when a stock sees higher topline expectations. The chart below shows forward revenue estimates and an overlay of the stock price.
BERY Sees Estimates Moving Higher
This stock seems to only get estimate revisions following a quarterly report, but that is the definition of a stable stock. After spending most of the year at around $1.22, the 2014 Zacks Consensus Estimate dipped down to $1.18 in May and remained there until August when the most recent beat pushed estimates higher. The current number is calling for $1.34 for this year.
The 2015 Zacks Consensus Estimate, like the prior year, held at $1.48 for most of the year but also recently jumped following the strong performance. The current 2015 Zacks Consensus Estimate is $1.55.
Valuation
The valuation for BERY is mostly in line with the industry average. The trailing PE of 19x is slightly above the 18x industry average. The forward PE is even closer to the industry average with BERY trading at 15.8x and the industry average coming in 15.9x. The Zacks system does not have a price to book number for this stock, but I will look into it. The price to sales multiple for BERY is 0.6x compared to 1.0x for the industry average.
Analysts are calling for revenue growth of 6.1% for 2015 and that compares favorably with the industry average of 2.1%. Earnings growth of 15.7% is also ahead of the industry average of 13.3%, so things look really good for next year. The only problem I have with this stock is that its net margin of 1.2% is well below the 4.8% industry average. If management had one goal to make me happy, it would be to improve that net margin.
The Chart
The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. BERY as a Zacks Rank #1 (Strong Buy) is no exception to that idea. The recent move much higher in earnings is likely to help guide stock to new highs.
Follow Brian Bolan on twitter at @BBolan1
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of theZacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Source: http://www.zacks.com/commentary/34773/bull-of-the-day-berry-plastics-bery
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