It’s hard to imagine any stock benefitting from the ongoing market mayhem that has wiped $220 million off the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in just four months and sent commodity prices into a tailspin.
Most defensive stocks haven’t been spared from the sell-off either with the UNIBALWEST/IDR UNRESTR (ASX: URW) share price, Spark Infrastructure Group (ASX: SKI) share price and Sydney Airport Holdings Pty Ltd (ASX: SYD) share price taking losing ground.
But there’s an ASX stock that could get an earnings boost from the market turmoil and that’s packaging company Amcor Limited (ASX: AMC) as high resin prices used in its manufacturing operations have crashed.
Macquarie Group Ltd (ASX: MQG) noted that Asian resin prices are down 20% in the last month but the prices will need to stay down before Amcor can get any real benefit given that there is a three to six month lag.
“After a tough FY18 (-US$43m of lag impacts across resin, aluminium and inks/solvents), headwinds are now easing,” said the broker.
“Aluminium prices have also moderated. Raw material impacts are expected to be neutral in FY19 with an ongoing negative impact in 1H19 (we estimate -$10m) with assumed raw mat recovery in 2H19. Recent moves support the latter and there is potential for slightly better outcome in 2H19 and into 1H20.”
While easing input cost inflation will give shareholders a reason to smile, Amcor isn’t without other challenges.
It’s major US customer PepsiCo, Inc. continues to see falling volume as consumers lose their taste for sugary drinks, while the weakening Euro against the US dollar will also impact on its bottom line.
Amcor and its takeover target Bemis Company, Inc. also have exposure to Argentina – an economy that’s struggling under hyperinflation.
Fortunately, this exposure is relatively small and the waning Australian dollar will provide some offset to the currency headwind (95% of its earnings are generated outside Australia).
There’s also a lot of bad news already in Amcor’s share price and consensus is forecasting around a 10% increase in the company’s earnings per share (EPS) in FY20 thanks to the expected merger with Bemis.
Macquarie has an “outperform” rating on the stock with a 12-month price target of $16.08 per share.
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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