The Zacks Containers - Paper And Packaging industry comprises companies that manufacture paper and plastic-based packaging products utilized in consumer and industrial end markets. The industry players’ products range from containerboard and corrugated packaging to flexible and rigid plastic packaging.
The industry participants serve a wide array of markets including food, beverage, foodservice and other consumer products like beauty, personal care and home care. The industry also serves the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets.
Let us take a look at the three major themes currently governing the industry:
- The industry’s wide exposure (more than 60%) to steady consumer-oriented end-markets, such as food and beverages, and healthcare keeps demand fairly stable across economic cycles. Moreover, rapid urbanization and rising purchasing power in Asia, particularly China, India, and Southeast Asia, will sustain demand for packaging in the days ahead. Demand for sophisticated packaging is on the rise and the industry is constantly striving to meet this by adopting new technology and innovative products. It is also likely to gain from capitalizing on growing global demand for eco-friendly biodegradable packaging materials spurred by environmental concerns.
- The evolution of e-commerce has significantly impacted demand in the industry. Packaging has gained utmost importance as it has to maintain the integrity of the product and has to be durable enough to withstand the complex automated and manual supply chains involved in delivering the product. According to Statista, global retail e-commerce sales are anticipated to improve to $6.54 trillion in 2022 from $2.3 trillion in 2017. In developed markets, e-commerce has become second nature for consumers, while developing countries are catching up. India is one of the fastest growing e-commerce markets and is expected to reach $120 billion by 2020 from $39 million in 2017. Notable companies in the space like Sealed Air Corporation (SEE), Packaging Corporation of America (PKG) and Amcor are focusing on ecommerce-ready packaging to capitalize on this growing demand.
- Apart from high raw material costs, the industry has been bearing the brunt of rising transportation costs, chemical costs and fuel costs. Consequently, the companies have to pass on as much of the raw-material price inflation as possible to customers. However, it might not always be feasible to pass on the price increase to customers. Consequently, the companies are now focusing on reducing costs, improving productivity and in turn increasing profitability.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Containers - Paper And Packaging industry, which is a nine stock group within the broader Zacks Industrial Products sector, carries a Zacks Industry Rank #88, which places it at the top 35% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Since the beginning of this year, the industry’s earnings estimate for the current year has gone up 35%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Containers - Paper And Packaging industry has unperformed its own sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has fallen 34.8% compared with the sector's decline of 10.3%. Meanwhile, the Zacks S&P 500 composite gained 1.9%.
One-Year Price Performance
Containers - Paper And Packaging Industry's Valuation
On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Containers - Paper And Packaging companies, we see that the industry is currently trading at 25.7x compared with the S&P 500's 11.9x and the Industrial Products sector's forward 12-month EV/EBITDA of 15.4. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry has traded as high as 30.08x and as low as 10.98x, with the median being at 25.7x.
The Containers - Paper And Packaging industry will be supported by persistent demand growth and investment in new technology and innovative products. The boom in e-commerce will sustain demand in years to come.
None of the stocks in the Containers - Paper And Packaging industry currently sport a Zacks Rank #1 (Strong Buy). We are presenting two stocks with a Zacks Rank #2 (Buy) that investors can bet on and two with Zacks Rank #3 (Hold) which can be retained.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Sealed Air Corporation: This Charlotte, NC-based company carries a Zacks Rank #2. The company has a positive average earnings surprise of 10.53% over the trailing four quarters. The Zacks Consensus earnings estimate for fiscal 2019 reflects year-over-year growth of 11.20%. The estimate has moved up 2% over the past 90 days. The company has an estimated long-term earnings growth rate of 10.2%.
Price and Consensus: SEE
UFP Technologies, Inc. (UFPT): The Zacks Consensus Estimate for fiscal 2019 for this Newburyport, MA-based company projects year-over-year growth of 8.10%. The estimate has gone up 2% over the past 90 days. The company has a positive average earnings surprise of 9.81% over the trailing four quarters. The stock carries a Zacks Rank #2.
Price and Consensus: UFPT
Greif, Inc. (GEF): This Delaware, OH-based company has a positive average earnings surprise of 0.60% over the trailing four quarters. The Zacks Consensus Estimate for earnings for fiscal 2019 reflects growth of 7.93%. The estimate for fiscal 2019 has gone up 0.3% over the past 90 days. The company has an estimated long-term earnings growth rate of 8.67%. The stock carries a Zacks Rank #3.
Price and Consensus: GEF
Graphic Packaging Holding Company (GPK): This Atlanta, GA-based company carries a Zacks Rank #3. The company has a positive average earnings surprise of 8.70% over the trailing four quarters. The Zacks Consensus Estimate for earnings for fiscal 2019 reflects growth of 6.17%. The estimate for fiscal 2019 has gone up 1.2% over the past 60 days. The company has an estimated long-term earnings growth rate of 13.00%.
Price and Consensus: GPK
5 Stocks Set to Double
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UFP Technologies, Inc. (UFPT) : Free Stock Analysis Report
Sealed Air Corporation (SEE) : Free Stock Analysis Report
Packaging Corporation of America (PKG) : Free Stock Analysis Report
Graphic Packaging Holding Company (GPK) : Free Stock Analysis Report
Greif, Inc. (GEF) : Free Stock Analysis Report
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