Silgan stock maintains Strong Buy rating as Del Monte bankruptcy impact limited

Investing.com - Raymond (NSE:RYMD) James has reiterated its Strong Buy rating and $60.00 price target on Silgan Holdings (NYSE:SLGN), a $6 billion market cap packaging company, following Del Monte Foods Corporation II Inc.’s Chapter 11 bankruptcy filing on Wednesday. According to InvestingPro data, SLGN currently trades near its 52-week high of $58.14, with analysts setting price targets ranging from $47 to $75.

The research firm estimates Del Monte represents approximately 2% of Silgan’s revenue, down from about 3% in 2022/2023 due to a 30% reduction in Del Monte’s 2024 pack plan. Despite the bankruptcy filing, Raymond James does not see material risk to Silgan’s 2025 guidance at this time. With total revenues of $6 billion in the last twelve months and a strong financial health score rated as "GOOD" by InvestingPro, Silgan appears well-positioned to weather this challenge.

According to bankruptcy filings, Del Monte’s DIP (Debtor-in-Possession) Facilities should ensure operations proceed uninterrupted during the critical 2025 Pack Season from June to October. This financing is expected to alleviate uncertainty for customers, employees, and vendors.

Raymond James anticipates Silgan would likely retain canning operations even if Del Monte’s assets are sold, as Metal Container assets are typically co-located where food products are filled. The firm also notes that Silgan’s guidance only incorporates half of the 2024 headwinds recovering in 2025.

For the second quarter of 2025, Raymond James expects a significant sequential improvement in Metal Containers adjusted EBIT as Silgan laps prior year headwinds from discrete customer destocking impacts, while maintaining a mid-single-digit volume growth forecast for Metal Containers in the third quarter of 2025.

In other recent news, Silgan Holdings reported its Q1 2025 financial results, revealing an earnings per share (EPS) of $0.69, which fell short of the analysts’ forecast of $0.79. However, the company’s revenue matched expectations at $1.47 billion. Despite the earnings miss, Silgan Holdings maintains a positive outlook for the year, with full-year EPS guidance projected between $4.00 and $4.20. The company achieved a robust year-over-year increase in net sales, reaching $1.5 billion, an 11% rise, driven by strong demand in the dispensing products and pet food packaging segments.

JPMorgan recently upgraded Silgan’s stock rating to Overweight, setting a price target of $57.00. The upgrade was based on expectations of a strong earnings year in 2025, despite the current weak economic conditions. The analyst noted that Silgan’s metal can results in 2024 were negatively impacted by weather disruptions and inventory reductions, affecting operating income by approximately $40 million. Nevertheless, Silgan is expected to implement cost reductions of $30 million in 2025, which could contribute an additional $0.20 per share.

Silgan’s recent acquisition of Weener in the fourth quarter of 2024 is projected to add more than $100 million to its annual EBITDA and approximately $50 million to EBIT. Despite an expected increase in interest expense by about $20 million, the acquisition is seen as a positive indicator for Silgan’s financial performance in the upcoming year. The company continues to focus on strategic growth initiatives and potential M&A opportunities, with a strong order book for Q2, especially in dispensing and pet food segments.

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