Goodbody Stockbrokers has reduced its forecasts for Smurfit following disappointing results from its US subsidiary, Smurfit Stone, but believes the stock represents very good value.
The company has made it clear that Smurfit Stone will continue to experience difficulties in the US market for at least another six months. According to Goodbody, the short-term outlook is for continued nervousness due to the weakening economy. However, this will be partly offset by rapidly falling US interest rates and the expectations of better times ahead.
If US linerboard prices hold during the months ahead, it will augur well for the industry. With relatively high levels continuing to prevail in a downcycle, the prospects of the sector breaking out of the severe cyclicality of the past decade are bright. This would set the stage for a sector re-rating and Smurfit, as the cheapest among its peers, stands to gain most, according to the brokers. Its earnings per share forecasts have been reduced from 28.6 cents (22.5 pence) to 25.5 cents but its share price target for the group of €2.50 remains.
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