We came across a long thesis on O-I Glass Inc (NYSE:OI) on ValueInvestorsClub by Woodrow. In this article we will summarize the bulls’ thesis on OI. The company’s shares were trading at $12.74 when this thesis was published, vs. closing price of $10.30 on Jan 13th.
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O-I Glass Inc (NYSE:OI), the world’s largest producer of glass bottles, generates 70% of its revenue from markets outside the United States, maintaining a leading presence in regions like Europe, North America, and Brazil. While beer represents its primary end market, the company’s glass bottles are also widely used for wine, soda, spirits, condiments, and food.
The bull thesis is primarily centered around the idea that the new CEO appointed in 2024, with a strong history of successful turnarounds in the industry, will bring an outside perspective and manage to finally solve the company’s problems arising from a decade of asbestos litigations that pressured the operating cash flow as well as from weak sales volume in the past quarters. To address this, the CEO plans to significantly cut costs and free up liquidity by closing excess capacity and thus reducing inventory days. The cash generated by inventory reduction will be used to reduce debt and fund the company’s aggressive cost-cutting and capacity rationalization program. Second, a permanent reduction in working capital will have a positive impact on ROIC and FCF, which are two key metrics that attract long-term investors – this is particularly important for OI because many long-term investors likely removed the company from their watchlists due to a decade of troubles that led to mediocre returns. Finally, operating at a lower capacity and keeping less inventory will significantly improve the company’s bargaining power and make it less prone to demand manipulation from customers – this is a significant potential driver of gross margin expansion.
The author also argues that the bull thesis could additionally benefit from modest volume recoveries in the industry as well as an uplift from a new MAGMA technology to improve the premiumization of its product mix and operating flexibility over time. As the industry cycle improves and management executes on the planned transformation, the author expects a target stock price between $31.72 and $50.44, implying a 208% to 390% potential upside from the current market price.
While we acknowledge the potential of OI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than OI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
