Yahoo Finance O-I Glass (OI) Shares Up 30% YTD: What's Driving the Rally?
O-I Glass, Inc.’s OI shares have gained 30.2% so far this year, against the industry’s decline of 7.0%. Meanwhile, the Industrial Products sector and the Zacks S&P 500 composite have lost 16.9% and 5.5%, respectively, in the same time frame. OI has a market capitalization of $2.4 billion. The average volume of shares traded in the last three months was 1.15 million.
Forecast-topping first-quarter 2022 results, upbeat outlook for 2022 and solid progress on its ongoing Portfolio Optimization program that is focused on exiting non-core operations and investing in its core business have contributed to the impressive price performance. The company is anticipated to benefit from the increasing preference for glass packaging and its efforts to capitalize on the same by investing in increasing capacity, acquisitions and driving innovation.
The Zacks Consensus Estimate for 2022 and 2023 has moved north by 4% and 2%, respectively, in the past 30 days, reflecting analysts’ optimism.
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OI currently has a Zacks Rank #2 (Buy) and a VGM Score of B. This helps in identifying stocks with the most attractive value, growth and momentum.
What’s Driving the Stock?
O-I Glass’ revenues in the first quarter of 2022 were $1.69 billion, which marked a 13% improvement year on year. Adjusted earnings per share surged 60% year on year to 56 cents, aided by gains from higher sales volumes and production, favorable pricing, and benefits from its ongoing margin expansion initiatives. Backed by the upbeat performance, OI raised its adjusted earnings per share to a range of $1.85 to $2.10 for the current year, up from the previous $1.85-$2.00.
OI has surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 18.9%.
O-I Glass recently announced that its subsidiary completed a sale and leaseback transaction for a plant located in Brampton, Ontario, for CAD $244 million ($191 million). With this deal, the company has already generated $1.3 billion of proceeds under its ongoing Portfolio Optimization program to exit non-core operations and invest in its core business. It is set to achieve its targeted $1.5 billion by the end of this year — way ahead of its original target of 2024.
Proceeds from the portfolio optimization program will be utilized to fund attractive expansion projects and improve financial strength.
Can OI Retain the Momentum?
The Zacks Consensus Estimate for 2022 earnings is pegged at $2.04, indicating an increase of 11.5% on 5.4% higher revenues of $6.7 billion. The consensus mark for 2023 earnings stands at $2.12, suggesting growth of 3.5% year on year. Revenues for the year are expected to exhibit growth of 1.7% to $6.81 billion. The long-term earnings growth rate is currently pegged at 7%.
O-I Glass is poised well to gain from the growing demand for glass on consumer preference for healthy, premium and sustainable products for food and beverage. It is thus investing in incremental capacity, joint ventures and acquisitions in emerging geographies to capitalize on this trend. The company has plans in place to invest up to $680 million in new capacity through 2024 to achieve volume growth and meet demand. These investments are anticipated to generate an average internal rate of return of 20%. Its margin expansion initiative is likely to generate annual benefits of $50 million from 2022 to 2024.
O-I Glass is driving innovation. Its glass melting technology, known as the MAGMA program, intends to reduce the amount of capital required to install, rebuild and operate the company’s furnaces. Its full-scale commercial MAGMA Gen 1 production line is operational, and the company achieved critical milestones in 2021. This new technology is focused on the ability of these assets to be more easily turned on and off or adjusted based on seasonality and customer demand. It has completed the pilot validation for the Generation two MAGMA line in Streator, IL. The company continues to make solid progress in developing Generation three. O-I Glass expects to complete the multi-generation MAGMA development plan over the next few years.
Other Stocks to Consider
Some top-ranked stocks worth considering in the Industrial Products sector are Graphic Packaging Holding Company GPK, Myers Industries MYE and Packaging Corporation PKG. While GPK and MYE flaunt a Zacks Rank #1 (Strong Buy), PKG carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.
Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 10% so far this year.
Myers Industries has an expected earnings growth rate of 67% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 27% in the past 60 days.
MYE has a trailing four-quarter earnings surprise of 20.1%, on average. Year to date, Myers Industries’ shares have gained 19%.
Packaging Corporation has an expected earnings growth rate of 16.2% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 4.2% in the past 60 days.
PKG has a trailing four-quarter earnings surprise of 19.6%, on average. Packaging Corporation’s shares have gained 15% year to date.
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