Demand and Pricing Actions Aid Packaging Corp (PKG) Stock
Packaging Corporation of America PKG is benefiting from escalating demand for packaging stemming from the booming e-commerce activities and higher requirements for meat, fruit and vegetables, processed food, beverages, medicine and other consumer products. Focus on buyouts and price-increase actions will also continue to drive growth.
Strong Packaging Demand for Essential Products
Demand in the Packaging segment, which accounts for 91% of the company’s revenues, continues to be strong. Packaging products are essential for distributing food, beverage and pharmaceutical products that will continue to support its Packaging segment’s revenues. Apart from this, Packaging Corp will continue to benefit from the e-commerce boom that has increased demand for boxes.
Focus on Expanding Mill Capacity
Packaging Corp completed the planned maintenance outage at the Jackson mill during the third quarter of 2021. The mill restarted the number 1 machine and began producing uncoated freesheet grades. This machine will help address customers’ strong demand for box plants and maintain targeted inventory levels. The mill’s number 3 machine produces linerboard to meet strong packaging demand and maintain appropriate inventory levels in the packaging segment. In February 2021, the company announced discontinuing the production of uncoated freesheet (UFS) paper grades on the machine and plans to permanently convert the machine to produce linerboard in a phased approach over the next three years. This move will provide much-needed internal linerboard supply and enable the company to optimize and enhance current mill capacity and box plant operations.
Strategic Acquisitions
In December 2021, Packaging Corp acquired all of the assets of Advanced Packaging Corporation in a cash-free transaction. The deal supports Packaging Corp’s focus on enhancing its containerboard portfolio through organic box volume growth and strategic box plant acquisitions. The company’s containerboard integration is anticipated to increase by almost 80,000 tons. This will bolster mill capacity and box plant operations. The deal is expected to be accretive to earnings this year.
Upbeat Outlook
Packaging Corp projects earnings per share to be around $2.83 in second-quarter 2022, which indicates year-over-year growth of 30%. Its Packaging segment will benefit from the ongoing strength in demand. The company expects price hikes across both segments will offset the impact of cost inflation. The Zacks Consensus Estimate for the second quarter earnings stands at $2.87, which suggests an increase of 32% year over year.
The Zacks Consensus Estimate for the company’s current-year earnings is pegged at $11.66, indicating year-over-year growth of 24.2%.
Price Performance
Packaging Corp’s stock has gained 5.4% in the past six months against the industry’s decline of 2.8%.
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Zacks Rank & Other Stocks to Consider
Packaging Corp currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks in the Industrial Products sector are Graphic Packaging Holding Company GPK, Myers Industries MYE and Titan International TWI, each flaunting a Zacks Rank #1 at present.
Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.
Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 8% in the past six months.
Myers Industries has an expected earnings growth rate of 67% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 27% in the past 60 days.
MYE has a trailing four-quarter earnings surprise of 20.1%, on average. Myers Industries’ shares have increased 25% over the last six months.
Titan International has an estimated earnings growth rate of 112% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 55%.
Titan International pulled off a trailing four-quarter earnings surprise of 56.4%, on average. The company’s shares have soared 46.7% in six months’ time.
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