On Wednesday, CFRA announced a downgrade of O-I Glass Inc. (NYSE: NYSE:OI) from 'Hold' to 'Sell,' adjusting the stock's price target to $10.00, a significant decrease from the previous $15.00. The firm justified the downgrade by pointing to a series of weakening fundamentals and what it perceives as unrealistic guidance from the company's management.
According to CFRA, the new 12-month price target is based on an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 4.7 times their 2025 EBITDA estimate. This figure represents a discount to O-I Glass's three-year average EBITDA multiple of 5.4 times. The firm also revised its earnings per share (EPS) estimates for O-I Glass, lowering the 2024 EPS estimate from $0.77 to $0.70 and the 2025 estimate from $1.75 to $1.22.
O-I Glass reported a third-quarter adjusted EPS of negative $0.04, which not only missed the consensus by $0.08 but also marked the company's only negative adjusted EPS in the last decade. The company has experienced a year-over-year decline in revenue for four consecutive quarters, with a 3.7% drop in the third quarter.
CFRA highlighted the company's declining margins, noting that the gross margin has fallen to 12.8%, the lowest since the second quarter of 2020, and the EBITDA margin has reached a 10-year low of 14.3%.
The report also mentioned that O-I Glass's third-quarter performance was significantly affected by temporary capacity curtailments aimed at aligning inventory with weak demand. Furthermore, the company's full-year 2024 adjusted EPS guidance was reduced to a range of $0.70 to $0.80, marking the third revision from the initial guidance range of $2.25 to $2.65. CFRA expressed skepticism regarding the effectiveness of O-I Glass's "Fit to Win" initiative, which aims to achieve $300 million in cost savings by 2027.
InvestingPro Insights
Recent InvestingPro data provides additional context to CFRA's downgrade of O-I Glass Inc. (NYSE: OI). The company's market capitalization stands at $1.79 billion, with a price-to-book ratio of 1.21, reflecting the market's current valuation relative to the company's book value. O-I Glass's revenue for the last twelve months as of Q3 2024 was $6.64 billion, showing a 7.18% decline, which aligns with CFRA's observation of consecutive quarterly revenue drops.
InvestingPro Tips highlight that O-I Glass operates with a significant debt burden, which could be contributing to the financial pressures noted in the CFRA report. Additionally, the company is not profitable over the last twelve months, as evidenced by the negative P/E ratio of -6.23. However, analysts predict that the company will be profitable this year, which may provide some optimism amidst the current challenges.
These insights from InvestingPro complement the article's analysis of O-I Glass's financial situation and future outlook. For investors seeking a more comprehensive understanding, InvestingPro offers 6 additional tips for O-I Glass, providing a deeper dive into the company's financial health and market position.
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