Tuesday’s trading had 146 stocks hitting a 52-week high compared to 51 hitting 52-week lows. One of the 51 hitting a 52-week low was Reynolds Consumer Products (REYN), the maker of Reynolds Wrap aluminum foil, Hefty garbage bags, and other home-related items.
According to Forbes, the company is 74% owned by a subsidiary of Packaging Holdings Limited, the holding company of New Zealand resident Graeme Hart, who is said to be the wealthiest person in the country with a net worth of $10.2 billion.
Hart’s investment vehicle, Rank Group, acquired Alcoa’s (AA) packaging and consumer businesses in 2008 for $2.7 billion. Reynolds Consumer Products went public in January 2020 at $26 a share. It is down over 18% in the past year and, more importantly, trading below its IPO price.
Lightly followed--it has just 352 Stocktwits followers and only 10 analysts cover REYN stock--it’s probably not on many investors’ buy lists.
Here’s why you might want to take a second look.
Is Business About to Get a Lot Busier?
Reynolds reported its Q4 2024 results on February 5. Its net revenues were $3.70 billion, $56 million less than in 2023. However, its adjusted net income was $352 million, 18% higher than a year ago. On a per-share basis, it earned $1.67 a share in 2024 compared to $1.42 in 2023.
So, based on its EPS in 2024, it’s trading at 14.3x those earnings. In 2025, its guidance is for a low-single-digit decline in net revenues and adjusted EPS to be slightly below its 2024 EPS, around $1.65 at the midpoint.
While this suggests there’s little growth ahead, that could change.
On February 10th, President Trump announced that the U.S. would implement a 25% tariff on aluminum products imported into the country, up from the initial 10% figure originally mentioned by the White House.
Further, there would be no country exemptions, such as Canada, which exports a significant amount of aluminum to the United States. There would be some exemptions for aluminum “smelted and cast” in the U.S., but that's about it.
Reynolds has, according to its latest 10-K, “27 manufacturing and warehouse facilities in 12 states and one manufacturing facility and one warehouse in Canada.”
From where I sit, Reynolds would be in an ideal position to avoid both the American tariffs and Canadian retaliatory tariffs, as long as it keeps the U.S. manufacturing revenues in the U.S. and the Canadian manufacturing revenues in Canada.
Here's the thing: America imports approximately 50% of its aluminum from other countries. Of those imports, Canada accounts for nearly 60%. Americans will pay a pretty penny for aluminum foil shortly should Trump move ahead with his tariffs on aluminum and steel, which, by the way, are on top of the existing 25% tariffs that all Canadian imports will face.
If you’re an American, you have a choice: Pay 50% more for XYZ imported brand or no tariff for Reynolds Wrap when the aluminum is sourced in the U.S. It’s a pretty simple decision for American consumers.
In the company's Q42024 conference call, CFO Nathan D. Lowe stated that tariffs were not factored into its 2025 guidance.
The Fly in the Ointment
There is a catch to Reynolds’ opportunity to grab market share. How much aluminum does it import to manufacture Reynolds Wrap? That’s the million-dollar question.
The Risk Factors section of its 10-K states:
“Raw material costs are also impacted by governmental actions, such as tariffs and trade sanctions,” pg 11 of the 2023 10-K states.
“Major developments in trade relations, including the imposition of new or increased tariffs by the United States and/or other countries, could have a material adverse effect on our business, financial condition and results of operations.”
In a current class-action lawsuit, the plaintiff argued that the company’s “Made in USA” claim is misleading because most of the raw materials, including bauxite, vital to the production of aluminum foil, come from outside the U.S.
“The case stresses that without bauxite sourced from outside the United States, it would be impossible to produce Reynolds Wrap aluminum foil,” states ClassAction.org.
If that’s true, then it becomes a question of what import tariff Reynolds or any other American producer would pay for the bauxite. If it’s only 25%, then the input costs wouldn’t be quite as onerous. Further, and I’m not an expert, the company could utilize hedging techniques to lower the price it pays for bauxite, etc.
What to Do?
This isn’t a simple bet. The downside could be significant if Reynolds cannot avoid the tariffs because it’s unlikely it would be able to pass through 50% tariffs. Perhaps, 25%.
I’m not a trade lawyer, so I couldn’t tell you. What I can say is that options are the perfect vehicle for this kind of bet. Unfortunately, REYN has minimal daily volume.
However, yesterday, it had four unusually active options.
I like both the $25 calls. The July 18 expiry is just 4% of its share price, while the April 17 expiry is just 1.7%. Your outlay is between $40 and $95, with both expiring after the steel and aluminum tariffs take effect.
If investors get a whiff that Reynolds’ downside isn’t nearly as bad as originally assumed, the stock will skyrocket.
It’s a big “if” but worth considering if you’re a risk-tolerant investor.
