Morningstar | Ball's Aerospace Business Surges Ahead in 4Q; Beverage Results Remain Solid Globally
Ball managed a solid fourth quarter, buoyed by exceptionally strong sales growth in its smaller aerospace business and decent results throughout the rest of its beverage-can operations. Although we think management will likely come up slightly short of its $2 billion in comparable EBITDA goal for 2019, the Rexam merger should continue to yield benefits over the years to come. With Ball more successfully converting aerospace backlogs into sales, we've meaningfully increased our growth assumptions for the segment over the coming five years to average 7%, with 15% growth next year. As a result, we're increasing our fair value estimate for Ball to $45 per share from $40.50. Our narrow moat rating is unchanged.Ball's beverage operations continue to make up the bulk of business for the company, and the business performed well. Although one-time costs are affecting near-term results, these efforts should boost margins in the long run. The consolidation of closely located facilities in Europe and North America should keep operating rates and margins high in the coming years. In addition, Ball's efforts to expand in South America outside of Brazil should both diversify its earnings and grow exposure to fast-growing emerging markets in the region. As a result, these efforts should yield a growth uptick over the next few years.
In Ball's aerospace business, recent investments have proved fruitful. While margins have remained roughly in line with historical averages, new hiring initiatives and facility expansions are boosting top- and bottom-line growth. Fourth-quarter sales rose a shocking 40%, with the largest backlogs Ball has ever seen. We think the runway for growth here is large, given Ball's relatively small market share in the broader aerospace and defense contracting space. We see revenue growing more than 15% in 2019, before gradually returning to a more normal 5% by the end of 2023.
Ball supplies metal packaging to the beverage, personal care and household products industries. The company provides aerospace and other technologies and services. The company's main product line is aluminum beverage containers. The company also produces aerosol containers, extruded aluminum aerosol containers and aluminum slugs. The company's segments are: beverage packaging, North and Central America, beverage packaging, South America, and beverage packaging, Europe, all of which are engaged in manufacturing and selling aluminum beverage containers; and aerospace, which manufactures and sells aerospace and other related products and provides services used in the defense, civil space and commercial space industries.
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