OI had its analyst day today. The meeting sounded very similar to the conference call held after the company's earnings release two weeks ago. As you recall, OI beat earnings by 29 cents a share and raised prices by 7%. The company is still gaining market share, increasing prices and is benefiting from the trend toward glass bottles from plastic. The stock is probably down today because the company indicated it is seeing higher cost pressures from natural gas, oil, freight, etc. This isn't really a surprise, and I think the company is being conservative. In addition, I believe the company will be able to offset a good portion of these pressures with price increases as well as better productivity.
OI noted that in the long term, it will see profit margins growing to the high teens from better productivity, its Six Sigma program, price/mix and acquisitions. It is generating huge cash flow and will continue to pay down debt (its debt/equity is now 30%/70%), buy back stock and look at strategic acquisitions. This all sounds good to me.
By the way, the CEO said on the conference call that the company is finding it hard to find energy in several regions. This supports our energy call of strong demand but limited supply. The valuation is too cheap to ignore. Presently, the stock is trading at 6.3 times EV/EBITDA and 11 times earnings on 2008 numbers. On 2009 estimates, it trades at 5.5 times EV/EBITDA and 9.7 times earnings. This is way below its peers.
disclosure: none, but looking
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