Report
Charles Gross
EUR 850.00 For Business Accounts Only

Morningstar | Raising Owens-Illinois' FVE to $21.50 After Reviewing Joint Ventures and Debt Assumptions. See Updated Analyst Note from 12 Jun 2019

After making a number of functional changes to our model to better account for the full value of Owens-Illinois, we've raised our fair value estimate to $21.50 per share from $19.50. However, our thesis is unchanged. We expect near-term margin expansion as the firm optimizes its Asia-Pacific operations to achieve improved profitability but remain bearish on glass container demand over the long-run. We think long-term growth for the company will merely keep up with inflation. However, we still believe the company will be able to out-earn its cost of capital, thanks partially to minimizing any net new investment. Accordingly, our narrow-moat rating is unchanged.

Our model now better accounts for the value derived from its numerous joint ventures and equity holdings, incorporating equity income into earnings before interest on an ongoing basis. Over the long-run, we anticipate the recognized equity earnings will be closely tied to the dividend cash flows received by Owens-Illinois from its stakes.

We have also incorporated an enterprise value adjustment to account for its low interest payments on fixed rate debt relative to our estimated cost of debt, which stands at 8% (pretax). Given today's low interest rate environment, this adds $320 million to enterprise value by our estimation.
Underlying
O-I Glass Inc

Owens-Illinois is a manufacturer of glass containers. The company has three reportable segments based on its geographic locations: Americas, Europe, and Asia Pacific. The company produces glass containers for alcoholic beverages, including beer, flavored malt beverages, spirits and wine. The company also produces glass packaging for a variety of food items, soft drinks, teas, juices and pharmaceuticals. The company manufactures glass containers in a range of sizes, shapes and colors. The company also provides engineering support for its glass manufacturing operations through facilities located in the U.S., Australia, France, Poland and Peru.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Charles Gross

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