According to analysts at RBC Capital Markets, Amcor Plc (ASX: AMC) shares are a good long-term proposition, but they warn that the company has challenges in the short term.
The broker has just initiated coverage on Amcor, following the company's $13 billion mega-merger with US packaging company Berry Group earlier this year.
Amcor said at the time the merger went through in April that the combination of the businesses would generate about US$650 million in total cost savings, and cash flow should rise to US$3 billion by FY28.
Amcor Chief Executive Officer Peter Konieczny said the combined business would have a "broader, more complete offering for customers".
Our focus now turns to delivering on synergies and growth opportunities, including leveraging our extensive global footprint and enhanced innovation and R&D capabilities, while also further refining our portfolio. The outstanding work our teams have completed over the past several months enables Amcor to enter fiscal 2026 in a better position than we anticipated, with a synergy run rate that will start strong and build quickly through the year.
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Doubt around cost savings
RBC analysts said in a note to clients this week that delivering the expected cost savings was now key.
While we believe the stock represents reasonable long-term value as the company delivers upon the targeted US$650m Berry synergies by FY28 we believe the share price will remain under pressure as packaging volumes continue to decline and debt concerns arise.
RBC analysts said the stock was trading on an earnings multiple of 9.2 times, which was a 10% premium to its peers in the US market.
They also said the packaging sector remained challenged due to soft consumer demand and cast doubt on Amcor's ability to meet its cost savings target.
We only expect the company to achieve 90% of the targeted synergies as we discount the potential revenue synergies of US$60m. Lower volumes and synergies will place pressure on earnings, leverage, targeted procurement synergies and identified asset sales.
RBC has a price target of $13.60 on the stock, compared with the current price of $12.52.
RBC analysts said Amcor needed to deleverage its balance sheet, given that it was carrying US$13.3 billion in net debt following the Berry deal. It would also need to refinance US$3.2 billion worth of debt in 2026, which was a "sizeable" task.
They also believed the flagged sale of 11 businesses would take longer to achieve and not occur before FY27.
