We think Crown Holdings (CCK) is poised for continued growth in 2009 and beyond, despite what we expect to be a very weak economy this year. Crown has posted earnings growth over the past two years at a compound annual rate of 19%, and we look for growth of nearly 12% in 2009. As Crown is one of the largest worldwide producers of metal containers used in the food and beverage industry, we think demand for the company's products will remain stable and possibly rise modestly in developed markets in the near term as consumers are likely to eat at home more to save money during difficult economic times. At the same time, Crown should benefit from its strong presence in international markets, where it derives about three-quarters of its sales. The company has recently added capacity in underserved and fast-growing markets in Asia and the Middle East and has plans to continue to expand into these promising markets.
Although the metal container industry is mature in many developed markets, we believe Crown has opportunities for modest expansion in these markets given its technological expertise and emphasis on new product development. We also think the company has some pricing leverage, due to its high market share as well as the low cost of metal packaging relative to the value of the end products it typically contains. Crown expects prices for tin plate to rise significantly in 2009, but we expect the company to raise its prices even more than its costs, which should lead to modest margin expansion.
Crown has relatively high debt levels, but we look for strong cash flows over the next several years to allow for steady debt reduction, even though the company has only minimal debt maturities coming due through 2010.
In our view, Crown shares are attractively valued, recently trading at about 9.9 times our 2009 earnings-per-share forecast. This is below the forward price-earnings valuation of its peer group of packaging companies of 11 times, and we believe the shares should trade at a slight premium because of what we see as the company's solid growth profile, strong market share, and penetration of expanding markets.
The stock, which carries Standard & Poor's highest investment recommendation of 5 STARS (strong buy), recently traded at $19 a share. Our 12-month target price of 25 is based on a weighted blend our discounted cash flow and relative price-earnings analyses.
COMPANY BACKGROUND
Crown Holdings (formerly Crown Cork & Seal) is a worldwide leader in the design, manufacture, and sale of packaging products for consumer goods. Crown Holdings has been in business for over 115 years and is one of the oldest U.S. manufacturers. The company's primary products include steel and aluminum cans for food, beverage, household goods, and other consumer products, as well as metal caps and closures. Crown manufactures conventional and easy-open ends for a variety of heat-processed and dry food products including fruits and vegetables, meat, seafood, soups, ready-made meals, infant formula, coffee, and pet food. The company is also one of the largest producers of cans used to package beer and soda. Crown operates about 140 facilities in over 40 countries, and we estimate that more than 75% of its sales came from outside the U.S. in 2008. It has strong market positions in Britain (about 11% of sales), France (9%), and Asia (8%).
The company enjoys strong positions in most of its markets. On a worldwide basis it is the leading producer of food cans and aerosol cans in the world, the second-largest supplier of metal vacuum closures, and the third leading manufacturer of beverage cans. Nearly half of its sales are derived from the large beverage-can market, and about a third comes from food cans. In certain sectors, it has a dominant market share. For food cans, the company has a 42% share of the European market, and in Thailand, it has a 39% share. It also has a very strong market share in most emerging markets, including the Middle East, Vietnam, and Singapore.
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