Amcor's Scale Masks Financial Strains: A Critical Look Beyond Cheap Valuation Claims

What happened

Amcor's merger with Berry has established it as the world's largest consumer packaging company, promising enhanced economies of scale and diversification. However, this expansion has led to severe financial stress, with net debt/EBITDA at ~8x, interest coverage of only 2.5x, and GAAP margins collapsing from ~10% in 2023 to ~6.7% in 2025. The stock has declined ~18% over the past year, yet it trades ~58% above a conservative DCF estimate of $5.28 per share, indicating market over-optimism about synergy delivery. A Seeking Alpha article highlights the stock as cheap based on forward earnings multiples, but this overlooks the underlying leverage and integration risks. Investors must scrutinize beyond superficial valuation metrics to assess the real challenges from regulatory headwinds, execution uncertainties, and the urgent need for deleveraging.

Implication

Amcor's elevated debt and weak interest coverage severely limit financial flexibility, making it vulnerable to synergy shortfalls or regulatory shocks. The stock's premium to intrinsic value offers little margin of safety, demanding clear evidence of margin repair and deleveraging before investment consideration. Dividend sustainability is at risk if free cash flow is pressured by restructuring costs or if high leverage constrains capital allocation. For existing holders, the risk/reward is skewed downward unless management delivers on its $650 million synergy target by FY28 and improves balance sheet health. New investors should avoid entry until tangible progress on operational turnaround and debt reduction is demonstrated, rather than relying on optimistic forward earnings multiples.

Thesis delta

The Seeking Alpha article's focus on cheap forward earnings introduces a bullish narrative, but it fails to address Amcor's critical financial vulnerabilities like high leverage and margin compression. This does not alter the core thesis that the stock is overvalued relative to its execution risks and balance sheet strain. Investors should maintain a skeptical stance until proven improvements in synergies and deleveraging emerge.