• 307 days Will The ECB Continue To Hike Rates?
  • 308 days Forbes: Aramco Remains Largest Company In The Middle East
  • 309 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 709 days Could Crypto Overtake Traditional Investment?
  • 714 days Americans Still Quitting Jobs At Record Pace
  • 716 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 719 days Is The Dollar Too Strong?
  • 719 days Big Tech Disappoints Investors on Earnings Calls
  • 720 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 722 days China Is Quietly Trying To Distance Itself From Russia
  • 722 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 726 days Crypto Investors Won Big In 2021
  • 726 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 727 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 729 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 730 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 733 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 734 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 734 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 736 days Are NFTs About To Take Over Gaming?
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

FAST Graphs

FAST Graphs

FAST Graphs

F.A.S.T. Graphs™ is a powerful research tool providing "essential fundamentals at a glance" on over 17,000 symbols. F.A.S.T. Graphs™ empowers the user to research stocks…

Contact Author

  1. Home
  2. Markets
  3. Other

Ball Corp: Boring Company, Interesting Prospects

Ball Corporation (BLL), founded in 1880 by five brothers, is a metal packaging company that employs more than 14,500 people in over 90 locations worldwide. At first glance it might seem as though this is a rather boring company. In fact, seeing the company's products touted as "solutions" may even sound a bit odd - for example "beer solutions" or "soft drink solutions." However, I suppose if you just had the beverage without a can you would truly have a problem. In turn, the aluminum can is quite literally a solution.

And if you're not yet excited about the company, perhaps the opening headline from Morningstar will quickly reinvigorate your enthusiasm:

"Ball provides beverage cans for each of the 10 largest domestic craft breweries."

From there you might dig a bit into the craft beer market. For instance, the craft brewing market grew by about 15% in each of the last two years, as compared to just 1% for the overall U.S. beer market. Or you could see that there were just 89 breweries around in 1980 while there are more than 2,500 today. Perhaps you would be interested to know that craft brews now represent 30% of Costco's (COST) beer sales. You might have even picked up on the idea that there's a movement in craft beers away from bottles towards cans.

Obviously the craft beer market for container makers might be a small portion of the company's prospects, but it's noticeable that markets like these can provide a growth thesis for an otherwise "boring" company. In fact, this type of company fits ideally with Peter Lynch's first criteria for finding the perfect company:

"The perfect company has to be engaged in a perfectly simple business, and the perfectly simple business ought to have a perfectly boring name. The more boring it is, the better."

Making containers and calling yourself "Ball Corporation" seems to fit the Peter Lynch bill reasonably well. Anyone want to learn how a can is made? But Ball Corp has some impressive stats behind its name. For example, Ball Corp accounts for about 40% of North-American beverage-can production and nearly a third of the European beverage-can supply - making it the world's largest metal can manufacturer. Ball Corp has an economic moat in that there are relatively few competitors in the long-term contract driven industry with efficient scale. Much like railroads and utilities, it would be difficult - although certainly not impossible - for a start-up to quickly displace market share.

Some of the risks for the company include a switch to more glass and plastic containers (ironic considering the company began as a glass container maker), a concentrated customer base and the potential for future regulation.

15 Years of Growth

Ball Corp has grown earnings (orange line) at a compound rate of 17.1% since 1999, resulting in a $6.6 billion dollar market cap. In addition, Ball Corp's earnings have risen from $0.42 per share in 1999, to today's forecasted earnings per share of approximately $3.15 for 2013. Further, Ball has had a steady dividend (pink line) which has been increasing as of late.

For a look at how the market has historically valued Ball Corp, see the relationship between the price (black line) and earnings of the company as seen on the Earnings and Price Correlated F.A.S.T. Graph below.

Larger Image

Here we see that Ball's market price previously began to deviate from its justified earnings growth; starting to become undervalued during the recent recession and coming back slightly in the last couple of years. Today, Ball Corp appears fairly valued in relation to both its historical earnings and relative valuation.

In tandem with the strong earnings growth, Ball Corp shareholders have enjoyed a compound annual return of 15.6% which correlates closely with the 17.1% growth rate in earnings per share. A hypothetical $10,000 investment in Ball Corp on 12/31/1998 would have grown to a total value of $84,580.70, without reinvesting dividends. Said differently, Ball Corp shareholders have enjoyed total returns that were roughly 5.2 times the value that would have been achieved by investing in the S&P 500 over the same time period. It's also interesting to note that an investor would have received approximately 2.2 times the amount of dividend income as the index as well.

BALL CORP (BLL) - 15 Year Performance Results
Larger Image

But of course - as the saying goes - past performance does not guarantee future results. Thus while a strong operating history provides a fundamental platform for evaluating a company, it does not by itself indicate a buy or sell decision. Instead an investor must have an understanding of the past while simultaneously thinking the investment through to its logical, if not understated, conclusion.

In the opening paragraphs potential catalysts, opportunities and risks were described. It follows that the probabilities of these outcomes should be the guide for one's investment focus. Yet it is still useful to determine whether or not your predictions seem reasonable.

Fifteen leading analysts reporting to Standard & Poor's Capital IQ come to a consensus 5-year annual estimated return grow rate for Ball Corp of 8.5%. In addition, Ball Corp is currently trading at a P/E of 14.5, which is inside the "value corridor" (defined by the orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Ball Corp's valuation would be $72.76 at the end of 2018, which would be a 10.4% annualized rate of return including dividends. A graphical representation of this calculation can be seen in the Estimated Earnings and Return Calculator below.

Larger Image

Now, it's paramount to remember that this is simply a calculator. Specifically, the estimated total return is a default based on the consensus of the analysts following the stock. The consensus includes the long-term growth rate along with specific earnings estimates for the next two upcoming years. Further, the dividend payout ratio is presumed to stay the same and grow with earnings. Taken collectively, this graph provides a very strong baseline for how analysts are presently viewing this company. However, a F.A.S.T. Graphs' subscriber is also able to change these estimates to fit their own thesis or scenario analysis.

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk treasury bonds. Comparing an investment in Ball Corp to an equal investment in a 10 year treasury bond, illustrates that Ball Corp's expected earnings would be 4 times that of the 10 year T-Bond Interest. This comparison can be seen in the 10-year Earnings Yield Estimate table below.

BALL CORP (BLL) - 10 Year Earnings Yield Estimates
Larger Image

Finally, it's important to underscore the idea that all companies derive their underlying value from the cash flows (earnings) that they are capable of generating for their owners. Therefore, it should be the expectation of a prudent investor that - in the long-run - the likely future earnings of a company justify the price you pay. Fundamentally, this means appropriately addressing these two questions: "in what should I invest?" and "at what time?" In viewing the past history and future prospects of Ball Corp we have learned that it appears to be a strong company with reasonable upcoming opportunities. However, as always, we recommend that the reader conduct his or her own thorough due diligence.


Disclosure: No positions at the time of writing.


Back to homepage

Leave a comment

Leave a comment