Graphic Packaging and Boston Beer have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – February 24, 2023 – Zacks Equity Research shares Graphic Packaging Holding Co. GPK as the Bull of the Day and The Boston Beer Company, Inc. SAM as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Belden Inc. BDC and O-I Glass, Inc. OI.
Here is a synopsis of all four stocks.
Bull of the Day:
Graphic Packaging Holding Co. stock offers investors a wonderful combination of superb value, stable growth, dividends, and a market-topping performance over the past 15 years and the last 12 months. And GPK stock still trades for under $25 per share.
Graphic Packaging is a sustainable paper and fiber-based packaging firm that topped our quarterly estimates once again in early February and raised its outlook as it proves how indispensable its offerings are during any economic environment.
An Attractive Package
Graphic Packaging is about as far from flashy as it gets. Still, its portfolio of paper packaging products are essential cogs in the economy, serving clients in industries ranging from food, beverages, and foodservice to personal care, household products, pets, and beyond. GPK’s paper-based packaging solutions include folding cartons, cooking solutions, containers, cups, and much more.
The Atlanta, Georgia-headquartered firm works with tons of recognizable brands. Graphic Packaging also holds leading market positions in coated recycled paperboard, coated unbleached kraft paperboard, and solid bleached sulfate paperboard.
The company expanded its reach and scope when it completed its acquisition of AR Packaging in November of 2021. The deal helped GPK broaden its geographical reach because AR is one of Europe’s leading packaging companies.
Graphic Packaging is now a consumer packaging giant in both the U.S. and Europe. It is worth stressing just how crucial GPK’s offerings are in the economy and how unlikely they are to go out of style no matter what the economy looks like 10 years from now. And GPK is aiming to “extend its position as the lowest-cost, highest-quality paperboard producer in North America” with a new mill and more.
Growth and Outlook
Graphic Packaging has grown its revenue at a rather solid clip over the years, with a few hiccups along the way. Graphic Packaging’s revenue climbed 7% in 2020 and 9% in 2021. It then posted 32% revenue growth in 2022 and 78% adjusted earnings expansion. Much of the huge YoY climb was due to its AR acquisition, still, its organic sales popped 3%.
Graphic Packaging topped our quarterly EPS estimate for the sixth quarter in a row and it also upped its guidance even as the overall S&P 500 earnings outlook fades. This is part of a steady upward revisions trend. GPK’s upbeat earnings revisions—with FY23 up 9% and FY24 up 5%—help it capture a Zacks Rank #1 (Strong Buy) right now.
Zacks estimates call for GPK’s revenue to climb another 5% in 2023 and 2% in 2024. Meanwhile, its adjusted earnings are projected to pop 18% in 2023 and 4% in FY24. Both Graphic Packaging’s top and bottom-line outlooks are solid considering the difficult to compete against years of growth it is coming up against.
Wall Street is high on the stock with 10 of the 13 brokerage recommendations Zacks has at “Strong Buys.” Graphic Packaging also pays a dividend that’s yielding 1.7% at the moment to match its highly-ranked industry.
The stock lands “A” grades for Growth and Value in our Style Scores system. Graphic Packaging is expanding its production efforts to support growing demand, with its investment of approximately $1 billion over three years to be “internally funded with operating cash flow.”
Graphic Packaging shares have outclimbed the S&P 500 over the last 10 years, up 215% vs. 160%. Stretching back 15 years, GPK has climbed 650% vs. the benchmark’s 205% and its industry’s 89%.
More recently, GPK has surged 45% in the past two years vs. its industry’s 7% and the market’s 1% gain. The stock has popped 5% YTD and it trades near its recent records at around $23 per share. Plus, Graphic Packaging’s average Zacks price target offers 22% upside to its current level.
Despite the performance, GPK trades right at neutral RSI levels and it just recently bounce back well above its 50-day moving average. On top of its cheap under $25 price, GPK is trading almost right at its own decade-long lows (8.3X) at 8.4X forward 12-month earnings. This represents a 60% discount to its own highs and 45% against its median.
Graphic Packaging also trades at a 50% discount to the Zacks Industrial Products sector and the S&P 500.
Graphic Packaging operates a boring, essential business poised for long-term steady expansion. Investors must also consider just how impressive its valuation is since GPK stock has soared over the last 15 years. Overall, GPK appears to be a great stock for the current market and economic uncertainty and for years to come.
Bear of the Day:
The Boston Beer Company, Inc. posted disappointing Q4 results on February 15 that included a somewhat shocking adjusted loss that sent the stock tumbling once again. The recent downturn is part of a huge fall from its 2021 peaks.
Boston Beer went on a massive roughly three-year surge higher, driven by the hard seltzer boom. But the craft beer staple and hard seltzer star became a victim of its own growth, as well as a more congested seltzer space, supply chain setbacks, and beyond.
Starting to Fizzle
Boston Beer was at the forefront of the American craft beer revolution for decades. SAM then launched Truly Hard Seltzer in 2016 and helped kickstart the biggest alcoholic beverage trend since light beer.
Truly and the seltzer boom forced Anheuser-Busch and countless others to flood the market with their own hard seltzers.
Boston Beer’s revenue surged 15% in fiscal 2018, 26% in FY19, 39% in 2020, and another 19% in FY21. This was an insanely impressive run for SAM and yet it still managed to post nearly 2% revenue growth in FY22. Despite the growth, Wall Street is forward looking and decided it was time to dump SAM shares long before the slowdown actually occurred.
Boston Beer’s FY22 depletions decreased by 5%, with shipments 3.8% lower. Wall Street was also scared by the huge fourth quarter earnings miss on February 15 that saw it report an adjusted loss of -$0.93 per share vs. the Zacks Consensus that called for +$0.72 a share. The company said the unexpected quarterly loss was “largely due to our production mix and supply chain inefficiencies.”
Wall Street analysts were forced to quickly lower their EPS outlooks, with its FY23 consensus 26% lower and FY24 now 17% below where it was 60 days ago. The negative earnings revisions are part of a long-term downward trend and help Boston Beer land a Zacks Rank #5 (Strong Sell) right now.
Boston Beer executives touched on the fact that “hard seltzer remains in decline.” But they did note that the firm has “new initiatives in place to improve Truly share trends and adapt our cost structure to the current volume environment, which we believe will lead to long-term success.”
Boston Beer stock is now down around 75% from its April 2021 peaks. That said, SAM has only fallen 10% in the past 12 months and it was enjoying a nice comeback to start 2023 until its recent Q4 earnings report helped derail the run.
SAM shares fell back under both their 200-day and 50-day moving averages once again. Plus, Boston Beer stock is still trading at 40.4X forward 12-month earnings, which is very rich compared to its Beverages – Alcohol industry’s 20.1X. Therefore, it might be best to stay away from the former high-flyer until Boston Beer can sort out its current setbacks.
3 Industrial Stocks Looking Better than the Rest
Prevailing market conditions seem to point toward a recession, if not this year, then in 2024. Whether there will technically be a recession or simply continued contraction in manufacturing output may be debatable. But in either situation, there will be negative implications for industrial product suppliers this year.
Companies with a focus on the manufacturing sector will have to contend with both demand and supply side challenges that manufacturers continue to face. Last year, manufacturers saw their costs increase as inflation hit historical highs, higher interest rates pushed up the cost of borrowing, and supply chain imbalances and labor shortages affected production.
This year is shaping up to be not too different with inflation remaining sticky at a relatively high level, interest rates set to move even higher and the labor situation being just as tight, even as supply chains ease up. An added problem this year is demand, which is likely to be increasingly sluggish, making cost recovery that much more challenging.
Despite these negatives, there are companies and segments that will benefit from secular growth trends such as industrial automation, digitization, reshoring initiatives, packaging innovation, etc. These, as well as segments that focus on or supply into the Consumer Staples sector, are likely to be safer bets. Let’s take a look at some examples:
St. Louis, MO-based Belden designs, manufactures and sells cable, connectivity and networking products that find application in the industrial automation, enterprise, education, healthcare, entertainment and broadcasting, sound and security, transportation, infrastructure, consumer electronics and other industries. Belden has manufacturing capabilities in North America, Europe and Asia, and a market presence in nearly every region of the world.
With key focus areas being automation in discrete manufacturing, process facilities, energy and mass transit, it’s easy to see why the company may not fare as badly during this downturn. The increased cost of capital, reshoring and the tight labor market are developing into trends supporting its business because automation tends to ease production constraints. Some of the areas of particular strength are automation within the food and beverage, and energy markets.
Analysts expect the company to generate revenue growth of 3.4% in 2023 and 5.6% in 2024. Earnings growth is expected to be 6.7% and 5.7%, respectively. In the last 30 days, analysts have raised their 2023 estimate by 43 cents (6.7%) and 2024 estimate by 8 cents (1.1%).
The shares are still slightly overvalued, although the recent selloff has made them a lot more attractive. The P/E of 12.6X, although more than its median value over the past year is a 29.8% discount to the S&P 500. They have always traded at a premium to the industry, but the current 56.8% premium to the industry is above the 34.8% average over the past year.
Graphic Packaging Holding Co.
Atlanta, Georgia-based Graphic Packaging, together with its subsidiaries, provides fiber-based packaging to food, beverage, foodservice and other consumer products companies in the Americas, Europe, and the Asia Pacific.
Its coated unbleached kraft (CUK), coated recycled paperboard (CRB), and solid bleached sulfate paperboard (SBS) products are sold to various paperboard packaging converters and brokers; its folding cartons, cups, lids and food containers primarily to consumer packaged goods, quick-service restaurants and foodservice companies.
It also sells barrier packaging products that protect against moisture, hot and cold temperature, grease, oil, oxygen, sunlight, insects and other potential product-damaging factors, as well as various laminated, coated and printed packaging structures sourced from third-party suppliers. Additionally, it designs and manufactures specialized packaging machines that package bottles and cans, and non-beverage consumer products; and installs and provides aftersales support for its packaging machines at customer.
Packaging especially for staple consumer products is a segment that should remain relatively stable during the expected downturn. Additionally, demand for paper packaging remains very high because of the continued increase in online retail and the delivery that goes along with it. Online food ordering and takeaway is accelerating across the world and the moving away from plastics makes paper the obvious alternative. Therefore, this is an attractive segment to be in right now.
Overall, Graphic Packaging continues to develop innovative packaging solutions, which along with the strong demand, strong pricing, improving productivity, recent acquisition in Europe that is expanding its geographic reach are contributing to year upon year of stronger-than-expected sales growth. Since it caters to the market for essential goods, its good fortunes should extend into the foreseeable future.
In the last 30 days, analysts have taken their 2023 EPS estimates up 20 cents (7.9%) and their 2024 EPS estimates up 7 cents (2.5%). The resultant 17.6% increase in 2023 earnings will come on revenue growth of 4.9%. The 2024 earnings growth of 3.9% is expected to come off revenue growth of 2.1%.
On a P/E basis, GPK is trading at a 9.3% discount to its median value over the past year. It is also trading at a discount of 34.0% to its industry and a 53.2% discount to the S&P 500. Therefore, the shares are cheap.
O-I Glass, Inc.
Perrysburg, Ohio-based O-I Glass is the largest manufacturer of glass containers in the world and a leader in glass container innovation. The company has 72 glass manufacturing plants spread over 20 countries. The revenue contribution between the Americas-Europe-Asia Pacific is 55-41-4%.
Its glass containers are used for packaging alcoholic beverages, including beer, flavored malt beverages, spirits and wine. It also produces glass packaging for a variety of food items, soft drinks, teas, juices and pharmaceuticals.
Some of the positives explained above for Graphic Packaging also apply to O-I Glass. For one, it operates in segments of the economy (food and beverage, healthcare) that tend to be relatively stable even in down markets. And second, glass is a good alternative to plastic, therefore the broad trend moving away from plastics also favors glass. The company is invested in a Glass Advocacy Campaign targeted at the US market and management is optimistic that it is redefining the dialogue on glass.
Pricing actions and solid execution are driving its strong results and capex investments are expected to bring online much-needed new capacity to further drive growth. Its recent restructuring efforts have also helped improve the capital structure.
Analysts are also positive about O-I Glass. Therefore the last 30 days have seen a 31 cent (13.7%) increase in its 2023 earnings estimate and a 17 cent (6.9%) increase in its 2024 estimate. At these levels, revenue and EPS growth for 2023 are 5.4% and 11.7%, respectively. For 2024, expected revenue growth is currently 3.6% and earnings growth 2.1%.
OI trades at a 20.4% premium to its own median value over the past year, a 49.6% discount to the industry and a 53.4% discount to the S&P 500. Therefore, it makes sense to grab some shares.
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