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Greif (GEF) Up 32% So Far This Year: What's Driving the Rally?

Shares of Greif Inc. GEF have gained 31.8% so far this year. The leading global producer of industrial packaging products has outperformed its industry and the S&P 500’s rally of 7.6% and 13.3%, respectively, over the same time frame. Higher demand in food, pharmaceutical and household goods industries due to the COVID-19 pandemic, forecast-topping second-quarter fiscal 2021 results and an upbeat outlook for fiscal 2021 have contributed to the upside.

The company has a market capitalization of $3 billion. It has a decent earnings track record. Greif has beat estimates thrice in the trailing four quarters and missed once, the average beat being 6.02%.

The Zacks Consensus Estimate for Greif’s fiscal 2021 and 2022 earnings has moved up 29% and 41%, respectively in the past 30 days, reflecting analysts’ optimism.

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Driving Factors

Better-Than-Expected Q2 Results: Greif reported second-quarter fiscal 2021 adjusted earnings per share of $1.13, which surpassed the Zacks Consensus Estimate of $1.11. It was also higher than the company’s guidance of 96 cents to $1.06. Sales of $1,341 million also beat the Zacks Consensus Estimate of $1,210 million.

Upbeat Outlook for Fiscal 2021: Greif’s anticipates adjusted earnings per share guidance between $4.55 and $4.85 in fiscal 2021. The mid-point of the guidance indicates year-over-year improvement of 46%.

Improving End Markets to Support Top-Line: Greif has been witnessing demand in food, pharmaceutical and household goods industries amid the COVID-19 pandemic. This is likely to continue until the situation stabilizes. The company is also seeing broad-based improvement in several of its key end markets. The industrial sector has been witnessing a pickup in activity over the past few months on gradual resumption of the global economic activities. Sales to lubricant and bulk chemical customers have been high courtesy of enhanced auto demand and generally improving industrial conditions worldwide. Tanks and coating sales were up due to better auto and construction demand, while sales to pharma and personal care markets remain robust.

Expected Synergies From Acquisition: The company completed the acquisition of Caraustar Industries, Inc. in February 2019, and is currently integrating its operations. The buyout strengthened Greif’s leadership in industrial packaging and significantly bolstered its margins, free cash flow and profitability. Greif continues to anticipate run rate synergies of at least $70 million by 2022.

Restructuring, Cost Reduction to Drive Margins: Greif will continue to benefit from its commitment to operational execution, capital discipline, and a strong and diverse product portfolio. The company will continue to focus on its restructuring activities in 2021, which includes optimizing and integrating operations in the Paper Packaging & Services segment, rationalizing operations and closing underperforming assets in the Global Industrial Packaging segment. Moreover, it has been implementing price increase to combat inflated costs, which is likely to drive earnings.

Zacks Rank & Other Stocks to Consider

Greif currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the industrial products sector are Sealed Air Corporation SEE, AGCO Corporation AGCO and Avery Dennison Corporation (AVY). All of these stocks carry a Zacks Rank #2 (Buy).

Sealed Air has an estimated earnings growth rate of 10% for the ongoing year. Year to date, the company’s shares have rallied nearly 28%.

AGCO Corporation has an anticipated earnings growth rate of 55% for 2021. The company’s shares have gained around 22% year to date.

Avery Dennison has an estimated earnings growth rate of 23% for the ongoing year. Year to date, the company’s shares have rallied nearly 35%.

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