TD Raises Target While warning CCL Industries Inc.’s adjusted earnings per share year-over-year growth rate will decelerate from the previous quarter, TD Cowen analyst Sean Steuart continues to expect a third-quarter earnings beat as “easy comps continue.”
“Even with prospects for slower earnings growth starting Q4/24, we expect that Q3/24 results will build on positive sentiment,” he said. “On the Q2 conference call in mid-August, management referenced ongoing strong top-line momentum for the CCL and Checkpoint segments in July (the latter, boosted by RFID applications). We suspect those trends continued into August and September at a moderating pace. On a regional basis, Latin America remains a relative strong point, mitigated by slowing demand growth from Asia, especially China. To a limited extent, we also expect that Q3 results will benefit from a full quarter including consolidation of the Pacman JV and incremental benefits from Innovia restructuring initiatives.”
Previewing the Nov. 13 release, Mr. Steuart now expects quarter adjusted fully diluted EPS of $1.14, which is 5 cents above the consensus on the Street and represents 21-per-cent year-over-year growth. He notes that gain would represent a “slight deceleration” from 25 per cent in the second quarter, which was the highest quarterly improvement since fiscal 2017 (excluding volatility during the pandemic). His consolidated EBITDA estimate of $399.6-million is also above the consensus of $385.5-million.
“Despite strong share price gains (up 56 per cent the past 11 months), CCL is active on share buybacks,” he noted. “Q3/24 share repurchases were $100.2-million versus Q2/24 buybacks of $40.6-million. Cumulative shares repurchased over the past two quarters are 1.86 million (1.0 per cent of the total outstanding). With tempered M&A ambitions, a strong balance sheet (1.2 times net debt/LTM [last 12-month] EBITDA at the end of Q2) and expected deleveraging over our forecast horizon, we believe that NCIB activity will continue (10 per cent of Class B shares allowed under the program).
“We are making modest changes to our earnings outlook and are introducing 2026 estimates. We expect a slowing EPS growth trajectory for CCL (2024 estimate = 18.6 per cent; 2025 = 7.0 per cent; 2026 = 5.7 per cent), but the company’s FCF profile is robust and overall growth rates continue to outpace broader label/specialty packaging industry trends.”
Maintaining a “buy” rating, Mr. Steuart raised his target for CCL shares to a Street high of $98 from $92. The average is $88.70.
“We believe that CCL represents attractive value given favourable mid-term organic earnings growth prospects and a flexible capital structure,” he said.