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Silgan's Acquisitions, Cost Reduction Plans Show Potential

On Nov 12, 2014, we issued an updated research report on Silgan Holdings Inc. (SLGN). The manufacturer of consumer goods packaging products is poised to benefit from acquisitions and expansion, cost reduction initiatives, and share repurchase. However, a poor outlook for the resin market remains a matter of concern. The company also faces persistent challenges from volatile energy costs and adverse weather.

Notably, the company continues to bolster profitability through strategic acquisitions and expansion of its footprint. Silgan acquired substantially all of the assets and assumed certain specified limited liabilities of Van Can Company in Sep 2014, a move which is expected to aid growth.

In addition, Silgan will continue to benefit from the Portola Packaging acquisition, which will enhance its Closure business and also enable expansion of its plastic closures offerings in Europe. Geographic expansion will also help in long-term growth.

Silgan’s continued focus on its Can Vision 2020 program will enhance its competitive advantage in metal food packaging. The Can Vision 2020 program aims at reducing the overall supply chain cost of the food can. Silgan will also benefit from geographic expansion. Moreover, the company established a two-year program to extend long-term contracts for further investments in these programs.

Further, Silgan repurchased 508,667 shares so far in 2014 for an aggregate purchase price of $24.7 million. On Sep 30, 2014, Silgan had $275.5 million remaining authorized for repurchase. Further share repurchases will provide support to the stock. In addition, Silgan is continually assessing cost reduction opportunities across each of its businesses, including rationalizations of existing facilities through plant closures and downsizing.

However, Silgan cut the upper end of its previously projected 2014 EPS guidance and now expects earnings to be in the $3.10-$3.20 range due to an early end to the pack season. In addition, the company remains apprehensive about the performance of its plastics and closures businesses given the expectation of a potential decline in the resin market in 2015.

Moreover, volatile oil and natural gas prices and adverse weather conditions may affect the company’s profitability in the future.

Currently, Silgan has a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked stocks worth considering at the moment include Crown Holdings Inc. (CCK), ACCO Brands Corp. (ACCO), which carry a Zacks Rank #2 (Buy).

Read the Full Research Report on SLGN
Read the Full Research Report on CCK
Read the Full Research Report on APOG
Read the Full Research Report on ACCO


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