Jefferies Makes Another Big Summer Change to Its Franchise Picks List

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With the second-quarter earnings reporting almost over, and the second half of 2016 well underway, many of the top firms we follow on Wall Street are making some changes to the lists of their high conviction stock picks for clients. With the market bursting through to new all-time highs, it makes sense to examine the lists and make some changes, as the rest of the year could have additional volatility due to the political cycle.

In a recent research note, the analysts at Jefferies made a big move by adding Ball Corp. (NYSE: BLL), a top consumer goods company in packaging and containers, to the firm’s well-respected Franchise Picks list of stocks to buy. Here we cover this new addition, and the company it replaced, and we also screened the Franchise Picks list for the highest dividend-paying stocks in the group.

Ball was added to the list and Jefferies sees it as a solid defensive play. With pro-forma sales of approximately $11 billion in 2015, Ball is a leading global supplier of metal packaging products, primarily for the beverage and food industries. In beverage cans, Ball produces roughly 100 billion units globally, with the leading market position in every major geographic area it serves. Ball also has a long-standing Aerospace and Technologies segment.

The company posted very solid second-quarter numbers that beat Wall Street estimates, and Jefferies also feels there’s upside to the company’s 2017 free-cash-flow guidance. Some on Wall Street think Ball can have as much as $1 billion in free cash flow by 2019.

The stock has been on fire as short sellers have raced to get out. Stronger than expected packaging growth drove the earnings surprises, and the contracted backlog has grown to more than $1 billion by the end of the second quarter.

WestRock Co. (NYSE: WRK) is the company removed from the Franchise Picks list, but is still a favorite at Jefferies and stays Buy rated. The old Rock-Tenn and MeadWestvaco have merged to become the second-largest U.S. packaging company, valued at $10.7 billion, trailing only International Paper with a market capitalization of just under $15 billion.

WestRock trades with a more than 10% free-cash-flow yield, and owing to demand resiliency and lower spending, the Jefferies team believes cash flow can hold up even in a tougher economic environment. They also think that the stock could continue its march off lows, if containerboard prices hold, which they have for the time being.

Ball shareholders are paid a small 0.66% dividend. The Jefferies price target for the stock is $94, and the Wall Street consensus target is $82.88. Shares closed last Friday at $79.15.

WestRock investors receive a very tempting 3.4% dividend. Jefferies has a $53 price target, but the consensus target is $70.56. Shares ended last week at $44.08.

Here are three of the top dividend plays on the Franchise Picks list.

AbbVie

This stock is one of the top global pharmaceutical stocks picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.