On Thursday, JPMorgan (NYSE:JPM) shifted its stance on Silgan Holdings (NYSE:SLGN), upgrading the stock from Underweight to Neutral and increasing the price target to $53 from $46.
The adjustment follows the company's recent activities, including the acquisition of Weener Packaging (NYSE:PKG), which is projected to significantly boost Silgan's earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2025.
Silgan Holdings is expected to see an enhancement in its EBITDA growth for the years 2025-2026. The company's recent acquisition of Weener Packaging is anticipated to contribute approximately $100 million to Silgan's EBITDA in 2025. Additionally, there is an expected $115 million in adjusted EBITDA to be added to the company's totals for the same year.
Despite facing potential cost penalties in the Metal can segment in fiscal year 2024 due to customer inventory reductions, which could impact earnings by about $0.10 per share, these are not expected to recur in 2025. This temporary setback is seen as a one-time event, with a recovery anticipated in the following year.
Moreover, Silgan's Dispensing and Custom Container segments are showing signs of recovery after a period of underperformance, with volumes starting to trend positively. The company is also aiming to cut costs by $20 million from Weener, which could translate to a $0.15 per share saving over two years, a figure that JPMorgan considers to be potentially underestimated.
Silgan's proactive approach in the market was underscored during its conference call, where it indicated that acquisition opportunities are on the rise. The firm's recent $900 million acquisition of Weener was executed at 8.7 times adjusted EBITDA, and 7.2 times inclusive of synergies, which suggests a strategic move to strengthen its market position. JPMorgan noted that further deal announcements from Silgan would not come as a surprise, given the current trajectory of the company's growth and expansion efforts.
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