On Wednesday, Barclays (LON:BARC) upgraded SIG Group AG (SIGN:SW) (OTC: SCBGF) stock, a packaging company, from Equalweight to Overweight, while also increasing the price target from CHF18.00 to CHF20.00. The adjustment reflects the firm's optimism about the potential acceleration in volume growth, particularly within SIG's bag-in-box business segment.
The revised outlook by Barclays is based on several factors. The firm acknowledges that SIG Group's stock has underperformed over the past three years, declining approximately 35% in contrast to the SXXP Index, which has seen a 4% increase. This underperformance is attributed to market perceptions of the company's costly mergers and acquisitions.
Barclays suggests that the current stock price is influenced heavily by SIG's aseptic carton business. The firm posits that if SIG can successfully turn around its bag-in-box business, the stock may experience a positive revaluation. Conversely, if improvements do not materialize, the possibility of selling the business segment could be considered.
The firm also anticipates an improvement in earnings per share (EPS) growth for SIG Group. After a period of stagnation projected through the fiscal years 2022 to 2024, Barclays expects a low double-digit growth rate from fiscal year 2025 to 2027. This forecast has led to an increase in the valuation multiple from 20 times to approximately 22 times the price-to-earnings (PE) ratio, aligning with the company's historical average.
Barclays concludes that the combination of expected EPS growth and the potential for business segment improvements justifies the upgrade to an Overweight rating and a higher price target for SIG Group AG.
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