Investors who stuck with CCL Industries Inc. as the label maker broadened its business into new markets have been richly rewarded, and analysts see more benefits to come.
Shares in the Toronto-based company, which produces labels for products such as shampoo bottles and aluminum aerosol cans, are up about 175 per cent over the past two years and now trading near record highs.
The stock started to take off in early 2013, after the company bought two businesses from Avery Dennison Corp. for about $500-million (U.S.), its largest-ever acquisition. They include a division that makes office supplies, and another that makes films and adhesive products for the automotive and consumer packaging industries.
Analysts believe the overall company is poised to keep growing thanks to recovering economies in North American and Europe, where it has the bulk of its sales, and stronger sales in emerging markets such as Asia and Latin America.
CCL also plans to keep acquiring companies to drive growth.
“The appeal for the stock isn’t just the leadership and organic growth but also the upside from potential and probable further acquisitions,” said Industrial Alliance Securities analyst Ben Jekic, who has a “buy” and a $133 price target.
All four analysts who cover CCL have a “buy” or equivalent rating on the stock, saying it trades at discount to industry peers. The consensus price target over the next year is $126.75, according to S&P Capital IQ.
That’s well above the company’s current price, around $102. The shares hit an all-time high of $109.99 on the Toronto Stock Exchange on June 6, up about 70 per cent from about $65 a year ago.
Investors may be concerned they’ve missed the stock’s run, but Mr. Jekic disagrees.
“Right now when you look at the chart it looks like it’s an overreaction of some sort. I will strenuously debate anyone who says that. Despite significant growth in the last year and a half, I still think there’s a lot more to come from this stock,” he said.
TD Securities analyst Damir Gunja initiated coverage of CCL a few weeks ago with a $130 price target. In a note, he called CCL a “stable cash generator with a strong balance sheet and superior margins compared to its peers.”
CCL operates about 90 facilities in 25 countries. About 70 per cent of its sales come from its main label business, which includes shrink and stretch sleeves around bottles and food containers, as well as instructional leaflets on pharmaceutical products.
Risks for the company include a potential downturn in the global economy, although analysts say its consumer products business would cushion some of that blow. The company’s container segment, in particular, suffered in 2009 and 2010 due to a weak U.S. dollar and lower volumes, but has been recovering since.
BMO Nesbitt Burns analyst Stephen MacLeod has a $125 target on the company, citing in a note its “attractive valuation” as well as its “exposure to the fastest growing segments of the global label industry; and its solid competitive position.”
CCL chief executive Geoffrey Martin sees emerging markets and future acquisitions as the two main areas of growth for the company.
“The world of labels is a very fragmented space, so we have many opportunities to acquire businesses … and will continue to be doing that,” he said.