UBS maintains Buy rating and $17 target on O-I Glass shares

Tuesday, O-I Glass Inc. (NYSE:OI) shares received continued support from UBS, with analyst Joshua Spector reaffirming a Buy rating and a $17.00 price target. According to InvestingPro data, the stock currently trades at $12.30, with analysts’ targets ranging from $12 to $22, suggesting significant upside potential. Spector’s endorsement follows the company’s investor day, where O-I Glass outlined its strategic plans. The analyst highlighted the company’s focus on significant cost savings and internal controls as key to improving its financial performance, particularly important given the company’s current Fair Value status indicates potential undervaluation.

Spector noted that O-I Glass’s CEO is utilizing an Economic Profit framework to guide decision-making, which is expected to yield over $650 million in cost savings over the next three years. InvestingPro data shows current EBITDA at $969 million, with a significant debt burden reflected in a debt-to-equity ratio of 4.8x. Despite these challenges, management has been actively buying back shares, demonstrating confidence in the company’s trajectory. UBS’s stance remains cautious, not fully incorporating O-I’s ambitious 2027 EBITDA target into their model. However, Spector pointed out that the market seems to be undervaluing the company’s potential for improvement.

Despite the consensus EBITDA for 2027 being nearly 10% below O-I’s own target, UBS’s estimate is about 2% above consensus. The analyst believes that as the company stabilizes its volumes in comparison to the market and executes its plan, investors will begin to recognize its value. The current stock price suggests a roughly 15% free cash flow yield based on UBS’s conservative estimates, which is considered attractive.

The $17 price target set by UBS implies a near 50% potential upside from the stock’s current trading levels. Spector expects that evidence of O-I Glass’s execution on its strategic plan and volume stabilization could become apparent over the next year, potentially leading to a re-rating of the stock by the market.

In other recent news, O-I Glass has announced a series of strategic initiatives aimed at enhancing its market position and delivering long-term value to shareholders. The company reaffirmed its 2025 guidance with adjusted earnings per share expected to be between $1.20 and $1.50, and free cash flow projected between $150 and $200 million. Additionally, O-I Glass outlined its "Fit to Win" restructuring program, which includes closing 7% of its capacity to optimize its network and is expected to increase adjusted EBITDA to at least $1.45 billion by 2027 through $300 million of annualized savings. However, S&P Global revised its outlook for O-I Glass from positive to stable due to weak alcoholic beverage volumes, which significantly impacted earnings and cash flows in 2024. The company faced a 3.9% decrease in shipments, with the alcoholic beverage market representing approximately 62% of its revenue. Meanwhile, RBC Capital Markets highlighted potential negative effects of proposed Trump 2.0 tariffs on the packaging sector, which could impact O-I Glass and other companies supplying beverage cans and glass bottles for Mexican beer. Despite these challenges, O-I Glass anticipates improvements in leverage and cash flows due to permanent capacity reductions and fewer temporary production curtailments.

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