Ball Corporation: A Buy Opportunity if Management Executes Well

Ball Corporation has shown a rebound in volumes and better pricing mix for aluminum products. The company's performance in the last year is worth analyzing.

Ball Corporation (NYSE: BALL) has exhibited a notable rebound in volumes and a more favorable pricing mix for aluminum products, capturing the attention of investors. This article analyzes the company's performance over the past year and evaluates its future prospects.

Recent Performance

In 2024, Ball Corporation faced a challenging period with sales on a downward trajectory, negatively impacting its share price. However, the company demonstrated a significant turnaround in the first quarter of 2025. Key drivers for this improvement included a 2.6% year-over-year (y/y) increase in aluminum packaging shipments, particularly in non-alcoholic and energy drink categories. Additionally, a more favorable pricing and mix of products contributed to this turnaround, as higher aluminum prices and premium can products drove up average selling prices (ASP).

Efficiency and Profitability

Despite a drop in net margins, primarily due to discontinued operations, Ball Corporation's gross and operating margins improved significantly over the last year. This was achieved through better product pricing, cost controls, and the rollout of the Ball Business System. The company also streamlined its operations by divesting lower-priority businesses to prioritize core packaging segments.

However, the company's return on assets (ROA) and return on equity (ROE) remain relatively low compared to historical numbers. While these metrics can be improved, it is important to note that none of the companies in the peer group have exceeded 10% in return on total capital (ROTC).

Financial Situation

As of the first quarter of 2025, Ball Corporation finished with around $449 million in cash and equivalents against $6.1 billion in long-term debt, an increase of $800 million since the end of 2024. The company issued additional senior notes at a 4.25% interest rate, enhancing its financial flexibility. The interest coverage ratio of 4.4x indicates that the company is not overleveraged and should not face significant issues with its debt.

Outlook and Valuation

The company's position in the aluminum packaging segment, driven by sustainability trends, offers long-term growth potential. However, the exposure to the beer segment, which accounts for over 30% of the business, poses risks, especially given recent declines in North American beer sales. To mitigate this, Ball Corporation should adapt its strategy to offer more alcohol-free alternatives.

For valuation, analysts forecast revenue growth ranging from 2.5% to 6.6% for the next year, with a conservative estimate of around 3% compound annual growth rate (CAGR) over the next decade. The company's earnings per share (EPS) growth is expected to be between 11% and 14% for 2025, with a long-term CAGR of around 8%. Using a discounted cash flow (DCF) analysis, the company's average fair value under a three-scenario model is around $91 per share, suggesting a potential 25% upside from the current valuation.

Conclusion

Ball Corporation is heading in the right direction, with improvements in sales volumes and pricing mix. The company's focus on innovation, sustainability, and strategic diversification positions it well for future growth. However, continued vigilance is needed to adapt to market trends and manage debt levels effectively.

References:
[1] https://seekingalpha.com/article/4801507-ball-stock-buy-if-the-management-doesnt-drop-the-ball