Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message| ()  

Company Overview: Owens-Illinois, Inc. (OI), through its subsidiaries, manufactures and sells glass containers primarily in Europe, North America, South America, and the Asia Pacific. It produces glass containers for beer, ready-to-drink low alcohol refreshers, spirits, wine, food, tea, juice, and pharmaceuticals. The company also produces glass containers for soft drinks and other non-alcoholic beverages. Owens-Illinois sells its products directly, as well as through distributors to brewers, wine vintners, distillers, and food producers.

Prognosis: The company reports earnings after the bell tonight and its stock is down roughly 20% over the last three months on concerns for European sales given their recent troubles and on earnings estimates that have come down over worries about the Euro.

Valuation: OI is selling for approximately 9.5 times this year’s consensus earnings and 8 times next year’s projected earnings. It is selling at less than .7 times revenue and generates substantial cash flow.

Catalysts: There are several factors that we believe should provide support for a higher stock price in the near and medium term:

1. The Euro has stabilized and European growth seems to be doing better than the worst case scenarios

2. Should benefit by the long term growth in emerging markets

3. Cost saving potential still exist in integrating its European operations and implementing global procurement policies

4. Asbestos claims should continue to fall in the future as the average age of claimants rise

Recommendation(s): Given its low valuation, improving earnings and strong cash flow; we feel stock is currently undervalued. In our opinion, the stock should be trading at a more reasonable rate of approximately 11-12 times next year’s projected earnings of around $3.70. Our target Price is $41-$45, up from the current price of $29.45.

Disclosure: Long OI

Source: The Case for Owens-Illinois