Headquartered in Zurich, Switzerland, established packaging company Amcor plc (AMCR) has grown significantly over the past few years, especially after completing the acquisition of the Bemis Company in June 2019. AMCR recently declared a $0.12 quarterly dividend, payable on September 28, which cumulates to a $0.47 annual dividend and a 3.65% yield. This compares to its 1.77% four-year average dividend yield.

Also, on August 16, AMCR announced its plans to build two new state-of-the-art innovation centers in Belgium and China.

The stock has gained 10.1% over the past month to close yesterday’s trading session at $12.65. It is currently trading 2.1% below its  $12.92 all-time price high, which it hit on August 25, 2021. However, AMCR recently witnessed a decline in hedge fund sentiment, and rising COVID-19 cases due to the rapid spread of its Delta variant have fostered an uncertain near-term outlook for the company because its earnings and free cash flow could be significantly impacted.

So, here’s what we think could influence AMCR’s performance in the coming months:

Robust Financials

For its  fiscal year ended June 30, 2021, AMCR’s net sales came in at $12.86 billion, representing a 3.2% year-over-year rise. While the company’s net sales from its  Flexibles segment increased 2.9% year-over-year to $10.04 billion, its net sales from its Rigid Packaging segment were $2.82 billion, up 3.9% year-over-year. AMCR’s net income for the year increased 53.4% year-over-year to $939 million. Also, its EPS came in at $0.60, up 57.6% year-over-year.

Sustainability Measures

In 2018, AMCR pledged to make all its packaging recyclable or reusable by 2025, and it has been taking several steps to hit that goal. For example, in June, the company’s Flexibles North America business announced the installation of  a seven-layer blown film line, which enables customers to shift to recycle-ready solutions without compromising performance, product appearance, or manufacturing throughput. In addition, it launched the first recycled plastic packaging for powdered chocolate in Latin America in May 2021, reducing the package’s carbon footprint by 53% when recycled, compared to the previous packaging.

In collaboration with Nestlé S.A. (NSRGY), AMCR has developed a next-generation packaging solution made from sustainably sourced thermoformable paper, which is dynamic enough to be printed on with either flexographic or gravure technology and is finished with heat or cold-seal adhesive.

Lofty Valuation

In terms of forward non-GAAP P/E, AMCR’s 15.78x is 11.1% higher than the 14.20x industry average. Its 2.35x forward non-GAAP PEG  is 78% higher than the 1.32x industry average. Furthermore,  the stock’s 1.92x and 11.82x respective EV/S and EV/EBITDA are higher than the 1.69x and 7.62x industry averages of.

POWR Ratings Reflect Uncertainty

AMCR has an overall C rating of C, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. AMCR has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

Moreover, the stock has a D grade for Sentiment, consistent with its unfavorable analyst sentiment. Wall Street analysts expect the stock to hit $12.23 in price in the near term, which indicates a potential 3.3% decline.

AMCR is ranked #14 of 25 stocks in the Industrial – Packaging industry. Click here to access AMCR’s ratings for Growth, Momentum, Stability, and Quality as well.

Bottom Line

Meeting the packaging needs of the food, beverage, health care, home & personal care, and specialty cartons packaging industries, AMCR has significant market dominance operating in more than 40 countries and 230 locations. But while it reported impressive earnings results for its fiscal year 2021, its near-term prospects seem uncertain because of the growing number of COVID-19 cases across several parts of the world. Because AMCR looks significantly overvalued at its  current price level, we think it could be wise to wait for a better entry point in the stock to take advantage of its attractive dividend yield.

How Does Amcor (AMCR) Stack Up Against its Peers?

While AMCR has an overall POWR Rating of C, one  might want to consider investing in Industrial – Packaging stocks with a B (Buy) rating, such as Greif, Inc. (GEF), Veritiv Corporation (VRTV), and Smurfit Kappa Group Plc (SMFKY).

AMCR shares were trading at $12.76 per share on Friday morning, up $0.11 (+0.87%). Year-to-date, AMCR has gained 10.62%, versus a 21.07% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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