Now could be the time to pounce on Amcor (ASX: AMC) shares.
That's the view of analysts at Macquarie Group Ltd (ASX: MQG), which believe the ASX 200 stock could dirt cheap at current levels.
What is the broker saying about this ASX 200 stock?
Macquarie notes that the packaging company has flagged potential asset sales to streamline the business following its merger with Berry.
While it feels that this plan would impact its earnings, it should also result in margin improvements and lower gearing. The broker said:
For "legacy" AMC, we think potential asset sales likely to focus on Rigids biz. Rigids has underperformed Flex for a number of years (Nth Am Bev in particular), has lower margins & more concentrated customer base. Beverages demand is also more discretionary than food/HPC etc. Berry has embarked on recent divestments inc HH&S and Spec Tapes; we think there is further potential "pruning" in industrial/Agri areas.
On our scenario analysis, if we assume AMC divests 5% & 10% of group sales (at b/w 6-8x EV/EBITDA), this would reduce eps by -2-4% respectively and lower gearing by b/w 0.15x and 0.5x ND/EBITDA.
In addition, the broker is positive on the recently completed merger with Berry and believes that the ASX 200 stock's management team can deliver on its promised synergies (and maybe more). It adds:
AMC has a good track record of synergy delivery (per Alcan & Bemis acq'ns). 40% of synergies are expected in year 1 (9cps or 12% eps accretive vs FY25 base), then 40% in year 2 & 20% year 3. We have factored in cost synergies but not rev synergies.
Time to buy
As mentioned above, the broker thinks that this ASX 200 stock is undervalued at current levels.
According to the note, Macquarie has put an outperform rating and $18.36 price target on Amcor's shares. Based on its current share price of $14.19, this implies potential upside of 29% for investors over the next 12 months.
In addition, the broker is expecting a 5.5% dividend yield over the period, which boosts the total potential return to approximately 34%.
Macquarie then concludes by highlights that its shares are trading on an undemanding valuation given its strong earnings growth outlook. It adds:
O/P. We fct 10% EPS CAGR over the next 3 yrs with Berry synergy delivery the key driver. Valuation undemanding on 12.8x and 11.5x FY25e / 26e PE and 5.5% FY25e div yield.
