Packaging Corp (PKG) Stock Rises 33% YTD: What's Driving It?
Packaging Corporation of America’s PKG shares have gained 32.7% over the past year. The company has outperformed its industry’s growth of 3.5% and the S&P 500’s 27.1% rise over the same period.
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Let’s take a look into the factors behind this Zacks Rank #3 (Hold) company’s price appreciation.
Improvement in Order Levels
In the first half of 2023, the Packaging segment witnessed reduced sales and production volumes due to a fall in demand, with customers lowering their inventories. The segment, however, witnessed a demand improvement in the third quarter of 2023 as customer ordering patterns resumed normal levels.
Through the third quarter, the company balanced its containerboard production with demand levels. To this end, it idled its Wallula, WA-based containerboard mill. The company also continued to optimize its cost structure across the containerboard mill system. It intends to restart the No. 3 machine at the Wallula mill in the fourth quarter to bring inventories to the desired levels.
In the Packaging segment, less market-related downtime is expected to favor fourth-quarter 2023 results. Shipments per day are expected to be higher for the corrugated products facilities. Packaging Corp’s outstanding cost-management and process-optimization efforts at its mills, and corrugated product plants have been benefiting its results. These tailwinds are expected to boost its performance in the upcoming quarters.
Increased E-Commerce to Aid Growth
Despite the current weakness, Packaging Corp stands to gain from strong growth in e-commerce activities, which will continue to fuel packaging demand.
The Packaging segment accounts for around 91% of the company’s revenues. Packaging products are essential for distributing food, beverage and pharmaceutical products. The Packaging segment will continue to be supported by stable packaging demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products.
Acquisitions to Boost Growth
In December 2021, the company acquired all assets of Advanced Packaging Corporation in a cash-free transaction. The company acquired a full-line 500,000-square-foot corrugated product facility located in Grand Rapids, MI.
The deal supported Packaging Corp’s focus on enhancing its containerboard portfolio through organic box volume growth and strategic box plant acquisitions. This will also boost the company’s mill capacity and box plant operations.
Key Picks
Some better-ranked stocks from the Industrial Products sector are Resideo Technologies, Inc. REZI, Applied Industrial Technologies AIT and A. O. Smith Corporation AOS.
REZI currently sports a Zacks Rank #1 (Strong Buy), and AIT and AOS carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Resideo Technologies’ 2023 earnings per share is pegged at $1.48. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 5.7%. REZI shares have rallied 15.6% year to date.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have gained 40% year to date.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 45.6% year to date.
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A. O. Smith Corporation (AOS) : Free Stock Analysis Report
Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
Packaging Corporation of America (PKG) : Free Stock Analysis Report
Resideo Technologies, Inc. (REZI) : Free Stock Analysis Report
