Put Your Investment Pedal to the Metal

Posted: Jan 25, 2012 12:01 AM

Ball Corp. (BLL, $37.91) manufactures metal food, beverage and household product packaging globally, and also serves the government and commercial customers through its aerospace and technologies business segment.

Ball Corp. has recently been active in acquisitions, divestures, building and closing plants, production line relocation and global joint ventures, in addition to establishing new company leadership at the CEO level.

After earnings per share (EPS) rose 20%, 24% and 45% in 2008 through 2010, Standard & Poor's Research expects EPS to be down 5% in 2011, then up another 13% in 2012.  The company is projecting long-term annual earnings growth of 10% to 15% per year.  Gross margins are expanding, and stock repurchases -- which will come in at about $450 million for full-year 2011 -- are coming from continued strong free cash flow.  "In our view, gross margins (before D&A) will continue to widen somewhat through 2012, up from 18% in 2010, reflecting supply chain initiatives, a better mix, and the elimination of higher-priced metal inventories."  -- Standard & Poor's Research, Jan. 21, 2012

"Although Ball, Crown, and Rexam are all trading at a discount to our fair value estimates, we believe that Ball's shares should exhibit the least volatility in the coming quarters. Given that Rexam has 10 beverage can lines in Italy, Greece, or Spain, and Crown has nine, versus Ball's zero, we believe that Ball is less susceptible to pullbacks in demand caused by the economic uncertainty and austerity in the European periphery." -- Our Outlook for Basic Materials Stocks, Yahoo! Finance, Dec. 28, 2011

"Ball (BLL) was upgraded today by JP Morgan (JPM) from neutral to overweight as the firm believes the beverage can business will outperform other packaging markets." -- Analyst Moves: BLL, QLIK, Forbes.com, January 12, 2012

"We rate shares of BLL a Buy with a $42 target price..." -- Citi Investment Research and Analysis (CIRA), Oct., 27, 2011

S&P maintains a 4-Star Buy rating on Ball Corp., and a Qualitative Risk Assessment of "Medium".  "Our risk assessment reflects the seasonality and cyclicality inherent in the beverage can business, volatile raw material prices, and our view of BLL's high debt levels. These factors are offset by BLL's improving balance sheet, with solid credit quality and liquidity, and our expectations for solid cash flow."

In addition, the S&P 12-month price target is $43.  Of note:  the CIRA and S&P target prices are derived from average long-term PEs.   If current market PEs swell higher than the long-term averages, so do stock prices.  BLL's price earnings (PE) ratio has ranged from 8 to 20 over the past ten years; the 2012 PE is 12.0.

BLL stock has been climbing steadily for ten years, and while it did have a price correction with the 2008 Financial Meltdown and the late summer '11 market drop, the price rebounds were quick compared to most other stocks.

Most recently, the stock peaked at $40.56 in July 2011, corrected in the late summer, and is now resuming a trading range of approximately $34 - $40.  An investor could buy this stock on a brief pullback to $35.50 for long-term growth, or traders could sell on a rebound to $40.  With a small current yield of 0.74%, this is not a stock for growth & income investors.

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