The Orora Ltd (ASX: ORA) share price is trading 1.17% lower today, changing hands at $2.12 a piece. The decline follows an around 10% gain over the past two weeks. Over the past year, the ASX material stock is 7% higher.
The company's Australasian segment is one of the world's leading producers of glass bottles, caps, and aluminium cans. Its products also include boxes, packing materials, and rigid and soft plastic packaging for food and pharmaceutical products.
Despite today's minor decline, Macquarie Group Ltd (ASX: MQG) expects good things from the stock.
Here's what the broker has to say.
Outlook for the ASX materials stock
In a recent note to investors, Macquarie confirmed its outperform rating on the ASX materials stock. It also slightly revised its 12-month target price to $2.36 from $2.39. The revised price still represents an 11% increase for Orora.
According to the broker, the company is experiencing solid growth for cans, but the outlook for glass demand is more challenging.
"Cans outlook positive as demand led expansions return vol growth to LT rates (vols +4% YTD consistent with avge past 4 years). ORA targeting $50m total EBIT from Cans expansions; we fct $ EBIT growth of $42m bw FY24a and FY30e or 6% CAGR after factoring in c-$10m impost from stranded OPS costs", the broker said.
"Outlook for global Glass uncertain with limited visibility and sustained recovery not yet evident across spirits & wine markets as end consumption remains tepid. Industry destocking has largely played out but cost of living pressures impacting demand and tariff-related uncertainty layered on top. Tequila demand a bright spot whilst Europe demand remains weak."
Elsewhere, the broker thinks the first order impacts of US President Donald Trump's tariffs are likely to be benign to the spirits sector. It expects that a tariff rate up to 50% will be manageable for Orora.
"SG has 29% indirect rev exposure to the US (Euro & Mexico customers selling into US) and 15% direct glass sales to US; latter less at risk with Mexican facility (USMCA compliant products currently exempt from tariffs) & ability to reconfigure production network", the broker said.
But there could be a threat to earnings growth
The broker warns that lower growth from cans and ongoing weakness in glass (driven by lower global wine demand) could threaten the company's earnings growth.
General weakness and prolonged periods of destocking in spirits and luxury wine markets would also be negative for the earnings growth profile.
As a result, the company has lowered its earnings per share forecast for FY 2025, FY 2026, and FY 2027 by 0.4%, 2.4%, and 0.7% respectively, to account for weaker demand.
