BofA Securities has adjusted its stance on O-I Glass Inc. (NYSE: NYSE:OI), elevating the stock from a Neutral to a Buy rating and establishing a price target (PT) of $16.00.
The upgrade comes despite concerns about the long-term volume trends in the glass industry.
The analyst at BofA Securities noted that the decision to upgrade was influenced by the potential value from cost reductions and improved fixed cost absorption that could significantly boost the company's share value.
The firm anticipates that O-I Glass's strategic use of Economic Value Added (EVA) to prioritize customers, markets, products, and assets could enhance returns, although there is a risk that this strategy might not fully counteract the generally flat or declining volume in the glass market.
O-I Glass's stock is currently trading at what BofA Securities considers to be "still-depressed levels," between $12 and $13 per share. The firm's analysis suggests that the company's efforts in cost management could add approximately $3 to $4 per share in value. This assessment underpins the new Buy rating and the price objective of around $16.
The analyst further commented that if O-I Glass's strategies are successful and the company manages to see an improvement in volumes from the current low levels, there could be additional upside for the stock price. The company's aim to optimize returns through strategic asset management is a key factor in the upgraded rating and price target.
In other recent news, O-I Glass, Inc. has announced a cost-cutting severance program, part of its broader "Fit to Win" strategy, with the company expecting to incur a charge of approximately $21 million in the third quarter of 2024 due to this initiative.
The company's Q2 2024 earnings report indicated a decrease in adjusted earnings per share to $0.44, attributed to lower net price realization, reduced shipment levels, and increased operating costs. Despite these challenges, O-I Glass continues to implement its "Fit to Win" program, aimed at enhancing competitiveness and reshaping operations.
RBC Capital has revised its price target for O-I Glass to $18.00, in response to the company's anticipated 3-4% reduction in production and a 1-2% decrease in sales volumes for 2024, but maintains an Outperform rating.
The firm is optimistic about the company's new management strategies, which are expected to help O-I Glass achieve an earnings per share of $1.70 in 2025, aligning with the company's long-term target of $1.45 billion in EBITDA by 2027.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on O-I Glass Inc.'s financial position and market performance. The company's market capitalization stands at $1.98 billion, with a price-to-book ratio of 1.21 as of the last twelve months ending Q2 2024. This relatively low P/B ratio aligns with BofA Securities' observation that the stock is trading at "still-depressed levels."
InvestingPro Tips highlight that O-I Glass operates with a significant debt burden, which could be a factor in the company's focus on cost reductions and improved fixed cost absorption, as noted in the BofA Securities analysis. Additionally, management has been aggressively buying back shares, which may indicate confidence in the company's future prospects and could potentially support the stock price.
While the company was not profitable over the last twelve months, with a basic EPS of -$1.88, analysts predict that O-I Glass will be profitable this year. This projection aligns with BofA Securities' optimistic outlook and upgrade to a Buy rating. The expected profitability turnaround could be a key driver for the stock's potential upside.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights beyond those mentioned here. The platform currently lists 6 more tips for O-I Glass, providing a deeper understanding of the company's financial health and market position.
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