Jefferies initiates Amcor stock with Buy rating, sees compelling risk-reward

Investing.com - Jefferies initiated coverage on Amcor Plc. (NYSE:AMCR) with a Buy rating and set a price target of $12.00. The packaging company, which boasts a notable 5.39% dividend yield and has raised its dividend for six consecutive years according to InvestingPro data, currently trades at $9.47.

The research firm cited a "compelling" risk-reward profile for the packaging company, noting that Amcor currently trades at a trough multiple while showing good earnings momentum from Berry Plastics (BERY) synergies. With a P/E ratio of 17.12 and an InvestingPro Financial Health score rated as "FAIR," the company maintains stable fundamentals.

Jefferies highlighted a potential path for volumes to improve as Amcor reorients its portfolio and divests non-core assets that have previously weighed on growth performance.

The firm emphasized that strategic mergers and acquisitions represent a meaningful driver for value creation in the packaging sector, which typically experiences low organic growth.

Jefferies noted that M&A success depends on companies avoiding overpayment and ensuring smooth integration processes, factors it appears to view favorably in Amcor’s case.

In other recent news, Amcor plc reported its fiscal third-quarter earnings, which fell short of analyst expectations. The company posted adjusted earnings per share of $0.18, missing the forecast of $0.19, and revenue of $3.33 billion, which was below the expected $3.49 billion and represented a 2% year-over-year decline. Despite the earnings miss, Amcor completed its merger with Berry Global, a move that is expected to enhance its industry position and capabilities. Wells Fargo (NYSE:WFC) initiated coverage on Amcor with an overweight rating, citing the merger’s potential to drive earnings growth through synergies over the next two years. The investment bank also set a price target of $10.00 for Amcor, based on estimated earnings per share of $0.72 for fiscal year 2025 and $0.90 for fiscal year 2026.

Moody’s upgraded Berry Global’s senior unsecured notes to Baa2 following the merger, reflecting the parent guarantee provided by Amcor. The merger positions Amcor as the largest plastic packaging company, with a revenue scale of $24 billion, and is expected to improve EBITDA margins and cash flow. Amcor updated its fiscal 2025 guidance, narrowing its adjusted EPS forecast to $0.72-$0.74 and projecting adjusted free cash flow of $900 million to $1 billion. CEO Peter Konieczny emphasized the company’s focus on capturing $650 million in cost, financial, and growth synergies over three years. Additionally, Amcor declared a quarterly dividend of 12.75 cents per share, an increase from the previous year.

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