Amcor's earnings downgrade has prompted analysts at UBS to cut their price target and suggest the packaging group's shares are already factoring in further acquisitions.
UBS analyst Ramoun Lazar cut his price target to $16.60 from $17.50 citing lower near-term earnings, a higher Australian dollar and cash costs. The broker has factored in Amcor making US$250m per annum of acquisitions.
Amcor will adopt Venezuela's floating exchange rate after supplies of US dollars started to dry up in the past few months, restricting its ability to buy products like resin – which is used for plastic packaging– in what was once South America's richest nation.
UBS noted, however, that the Venezuela impact on Amcor was "likely isolated to one region" as extreme circumstances prohibited normal operations.
The analysts expect acquisitions to play a big part in Amcor achieving 10 per cent to 15 per cent total shareholder returns.
"In particular, we see the acceleration in the pace of acquisition in FY16 (US$600m vs 5yr avg US$190m) as systematic of the need to step up M&A; activity to offset weak underlying growth conditions.
"We continue to see the US$10 billion Americas market as a logical avenue of growth given the fragmented industry structure and Amcor's under-representation in the region. With Amcor still trading on 19.0x 1 year forward PE, we see today's price already incorporating some of the expected upside from further acquisition activity."
