Ball Corp (BLL) Shares Up 15% YTD: What's Driving the Rally?

Shares of Ball Corporation BLL have outperformed the industry so far this year on solid beverage-can demand, investment in capacity expansion, introduction of fresher products and focus on cost-cutting actions. The stock has gained 14.8% year-to-date, outperforming the industry’s growth of 7.6%.

The company has a market cap of $23.4 billion. For the last three months, its average volume of shares traded has been approximately 2.02M. The company has an expected long-term earnings per share growth rate of 5%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Healthy Growth Projections

The Zacks Consensus Estimate for Ball Corporation’s 2020 earnings per share is currently pegged at $2.66, indicating year-over-year growth of 5.14%. The same for 2021 is pinned at $3.09, calling for a year-over-year rise of 16.1%.

Driving Factors

Global beverage-can demand continues to shoot up as consumers now prefer cans over glass and plastic. The company remains well positioned to bank on this by investing in capacity and products. Ball Corporation maintains its expectation to deliver long-term diluted earnings per share growth of at least 10-15% beyond 2020 and achieve EVA (economic value added) dollars growth of 4-8% per year.

The company expects capital spending of $800 million in the current year.  Ball Corporation continues to execute its strategies of achieving better value for standard products and higher growth for specialty products. The company’s cost-cutting actions will also bolster its margins. Further, the company has taken actions to improve operational performance in the aluminum aerosol business, while initiating additional products to expand its aerospace infrastructure and testing capabilities.

The company has been primarily investing in aluminum packaging production, in a bid to cater to the rising demand for aluminum cans, bottles and cups. It is focused on improving operational efficiencies, sustainability benefits and ramping-up the previously-announced line additions and greenfield-plant expansions, in order to add at least 8 billion units of capacity by the end of 2021.

Ball Corporation’s recently-launched infinity bottle will provide sustainable solution for personal care products, as customers are shifting from small- to mid-sized plastic containers at hotels and stores. This March, the company entered into an agreement to acquire an aluminum aerosol packaging business, Tubex, for $80 million. The buyout includes the purchase of a plant near Sao Paolo, Brazil. This investment will enable the company to extend its geographic reach, while serving the market as one of the leading aluminum aerosol suppliers in Brazil. Moreover, the acquisition aids the company’s global aluminum aerosol and slug business in Europe, North America and Asia.

The Beverage Packaging, North and Central America segment is expected to gain on continued benefits from new customer contracts, operational efficiency, solid demand for aluminum beverage packaging, and increased availability of cans from new production lines in Georgia and Texas. As the coronavirus outbreak spread in North America, the company witnessed significant beverage-can demand. Hence, higher demand for at-home consumption is anticipated to continue for the foreseeable future.The Beverage Packaging, EMEA segment will gain on growing customers’ preference for cans for traditional and non-traditional beverages, strong growth for energy drinks and higher at-home consumption.

The Aerospace segment’s contracted backlog remains strong at $2.3 billion as of first-quarter 2020 end. Contracts already won, but not yet booked into the current contracted backlog, reflect an increase of 14%. Program execution remains at a high level across the business. The segment continues to win and provide mission-critical programs and technologies to the U.S. government, defense, intelligence, reconnaissance and surveillance customers. Multiple projects to expand the company’s manufacturing capacity, test capabilities and engineering and support space are also likely to stoke growth.

Zacks Rank & Stocks to Consider

Ball Corporation currently carries a Zacks Rank #4 (Sell)

Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. SLGN, Broadwind Energy, Inc. BWEN and Axon Enterprise, Inc. AAXN. While Silgan sports a Zacks Rank #1 (Strong Buy), Broadwind Energy and Axon carry a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 15% in the past three months.

Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has appreciated 6% over the past three months.

Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 21.3% in three months’ time.

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