Overview
Ball (BLL), the world's largest producer of aluminum beverage cans, saw its shares fall roughly 40% earlier this year. Shares have recovered over the past couple of weeks, but are still well off its highs from 2019. We view the recent drop as a correction from the run-up from last year, and believe that the current share price offers investors an opportunity to begin to pick up shares in a stable business that will be largely unaffected by Covid-19.
A Boring Business That Can Withstand Economic Pressures From Covid-19
Beverage cans are a slow-growth industry with fairly predictable demand. Although a slow and mature market, the North American beverage can industry last year grew at its fastest pace in 25 years. This was driven by the ongoing shift in new beverage products to cans versus bottles or other packaging. As a result, the three main beverage can producers saw shares increase to (in our opinion) unsustainable valuations.
We view the majority of the decrease in Ball's share price to be more of a correction from last year's run-up, and not a selloff due to coronavirus concerns. For good reason, too. The fallout from Covid-19 should have a minimal impact on beverage can demand, and thus revenues should be relatively insulated.
Bars and restaurants across the world are currently closed, which will certainly affect sales in that channel. However, even though consumption at restaurants and bars will decline, much of that will likely be made up by increased consumption of beer, soda, and water at home. We view it very unlikely that grocery stores or liquor stores will shut down, keeping its other high-volume channel open.
Aside from beverage cans which make up ~85% of revenue, the company generates ~15% of revenue from Ball MetalPack and (not-so-boringly) Ball Aerospace. Ball
