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Greif Up 12% Post Q4 Earnings: Will the Trend Continue?

Zacks Equity Research
Updated

Following Greif Inc.‘s GEF fourth-quarter fiscal 2017 results, the stock has been gaining ground. Further, anticipated benefits from its transformation initiative as well as expected growth in segments are fueling the share price.

Shares of the company have surged 12% since it reported quarterly numbers on Dec 6, ahead of the industry’s paltry growth of 0.2%. In the last six months, the stock has rallied 10.2%, outperforming the industry’s gain of 6.0%.

If you haven’t taken advantage of the share price appreciation yet, its time you hold the stock in your portfolio as it looks promising and is poised to carry the momentum ahead. This Zacks Rank #3 (Hold) stock has an estimated long-term earnings growth rate of 8.67%, which highlight Greif’s inherent prospects.



Additionally, the stock has a VGM score of A. Here V stands for Value, G for Growth and M for Momentum. The company’s score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Valuation

On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 20.8x, lower than the industry’s average of 21.9x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Consequently, the lower the P/E of a stock, the better it is for a value investor.

Growth Drivers

Greif projects adjusted earnings per share for fiscal 2018 in the range of $3.25-$3.55. At the mid-point, the guidance represents a 15% improvement over fiscal 2017 performance. The company is likely to benefit in fiscal 2018 from transformation initiative. While the three-year transformation may have officially concluded in fiscal 2017, optimization activities identified during the initiative will continue into 2018.

The company’s Rigid Industrial Packaging & Services segment’s fourth-quarter sales were $60 million higher year over year on the back of selling prices stemming from index price increases and strategic pricing decisions. The company anticipates the segment’s gross margin to improve sequentially in first-quarter 2018 as the impact of the price adjustment mechanisms is realized.

In fiscal 2018, Greif’s Paper Packaging segment will benefit from realized containerboard price increases implemented over the course of fiscal 2017 and higher anticipated specialty sales. The company assumes that the blended old corrugated containers (“OCC”) cost for the entire year will be $152 a ton. Given the current assumptions, it expects the segment’s operating profit before special items to rise by $20 million in fiscal 2018 compared with fiscal 2017's results.

In fiscal 2018, Greif’s Flexible Products & Services segment will achieve greater benefits from third-party manufacturing initiatives and a more optimized SG&A footprint. This business remains on track toward achieving its run rate commitment in the range of $20-$30 million of operating profit before special items exiting 2020.

Estimate for the current quarter for Greif have moved up 8% in the past 30 days. The Zacks Consensus estimate for the fiscal first quarter 2018 is currently pegged at 68 cents, reflecting a 51% year-over-year growth. The Zacks Consensus Estimate for fiscal 2018 is at $3.41, which reflects a year-over-year growth of 15.7%. For fiscal 2019, the estimate is $3.78, a year-over-year climb of 10.90%.

Stocks to Consider

Some better-ranked stocks worth considering in the same sector include Caterpillar Inc. CAT, Deere & Company DE and Terex Corporation TEX. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar delivered an average positive earnings surprise of 53.06% in the trailing four quarters. The stock has gained 58.21%, year to date.

Deere pulled off an average earnings surprise of 19.5% in the last four quarters. The stock has surged 46.4%, year to date.

Terex delivered an average earnings surprise of 135.9% in the last four quarters. The stock has surged 45.7%, year to date.

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Click for details >>


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Greif Bros. Corporation (GEF) : Free Stock Analysis Report
 
Terex Corporation (TEX) : Free Stock Analysis Report
 
Caterpillar, Inc. (CAT) : Free Stock Analysis Report
 
Deere & Company (DE) : Free Stock Analysis Report
 
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