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Here's Why You Should Hold on to WestRock Stock for Now

Zacks Equity Research

WestRock Company WRK is poised well for growth backed by focus on continued investment in projects and the KapStone acquisition. Further, productivity and performance improvement programs across its manufacturing footprint will benefit results.

The provider of paper and packaging solutions, which has a market capitalization of $10.8 billion, carries a Zacks Rank #3 (Hold).

Factors Favoring WestRock

Positive Earnings Surprise History: WestRock outpaced the Zacks Consensus Estimate in the trailing four quarters by 10.51%, on average.

Earnings Ahead of Industry: Over the past five years, WestRock has an earnings growth of 10.1%, higher than the industry’s 0.5%. The stock has an estimated long-term earnings growth rate of 4.3%.

Price Performance: Shares of WestRock have gained 11.6% so far this year, against the industry’s decline of 0.8%.

ROE: The company’s ROE of 8.8% is higher than the industry’s 2.8%, highlighting the company's tactical efficiency in utilizing shareholders' funds.

Growth Drivers in Place

The company plans to invest approximately $1 billion in business till fiscal 2021. This is anticipated to generate $240 million in annualized EBITDA. In fiscal 2019, the company completed strategic capital projects at its Porto Feliz corrugated box plant in Sao Paulo, Brazil, Cottonton, AL and Covington, VA mills. It also continues to invest in strategic projects at its Florence, SC and Tres Barras, Brazil.

During fiscal 2018 and 2019, the company completed acquisitions of Schlüter, Plymouth Packaging and rival KapStone Paper and Packaging Corp that expanded its product offerings and geographic presence. The integration of KapStone Paper, the most notable acquisition among these, is on track. The company anticipates cost synergies and performance improvements of more than $200 million by the end of fiscal 2021.

KapStone’s corrugated packaging operations will enhance WestRock’s North American corrugated packaging business and provide complementary products. The buyout will help the company strengthen presence in Western United States and to compete better in the growing agricultural markets in the region. It will also speed up the company’s target to improve margins of its North American corrugated packaging business. The company continues to evaluate potential acquisitions in the future.

WestRock is also focused on productivity and performance improvement programs across its manufacturing footprint, which in turn will sustain margins. Recently, the company announced that it is reconfiguring its North Charleston, SC, paper mill to improve the long-term competitiveness of the mill. The move is expected to increase the company’s annual EBITDA by approximately $40 million, primarily owing to the reduction in operating costs from the shutdown of the paper machine and associated infrastructure.

Bottom Line

Investors might want to hold on to the stock for the moment as it shows ample prospects of outperforming its peers in the near future.

Stocks to Consider

Some better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd KL , Impala Platinum Holdings Ltd IMPUY and Polymetal International plc AUCOY , each sporting a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland Lake Gold has an expected earnings growth rate of 97.1% for 2019. The company’s shares have surged 60% so far this year.

Impala Platinum Holdings has projected earnings growth rate of 255.2% for fiscal 2020. The company’s shares have skyrocketed 312% in a year.

Polymetal International has an estimated earnings growth rate of 40.5% for the current year. Its shares have returned 56% in the past year.

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