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Packaging Corporation (PKG) Poised for Inorganic Growth

Zacks Equity Research

On Sep 27, Zacks Investment Research updated the research report on packaging products manufacturer Packaging Corporation of America PKG.

Headquartered in Lake Forest, IL, Packaging Corporation of America operates 8 mills and 93 manufacturing plants that manufacture several corrugated packaging products, including conventional shipping containers used to protect goods.

The company is the fourth largest containerboard and corrugated products producer in the U.S. Its product portfolio includes a diverse range of corrugated items such as shipping containers, point-of-sale graphics packaging, point-of-purchase displays and other specialized packaging. An enormous scale of production and an extended product portfolio offer a competitive advantage to the company to fulfill the varied demands of its diversified clientele.

On Aug 29, Packaging Corporation completed the acquisition of TimBar Corporation for $386 million, in cash. The transaction was funded through a five-year term loan facility. The company expects this acquisition to increase its containerboard integration by over 200,000 tons or 6% from its current level of 87%. The transaction will also allow for further optimization and enhancement of its mill capacity. The acquisition is likely to be accretive with immediate effect.

The company’s corrugated product manufacturing plants produce a wide variety of packaging products, including conventional shipping containers used to protect and transport manufactured goods, multi-colored boxes, and displays with strong visual appeal that aid merchandise the packaged product across retail locations. In addition, Packaging Corporation is a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. The diverse product portfolio mitigates operating risks associated with any downturn in a particular product category and ensures a steady revenue stream.

Despite stiff competition from other alternative product categories, industry-wide corrugated product shipments increased 2.2% year over year during the second quarter of 2016. The company expects seasonally higher volumes for containerboard and corrugated products and lower energy costs in the third quarter of 2016. Being one of the leading producers of containerboard and corrugated products in the country, Packaging Corporation is likely to benefit from the modest growth dynamics of the industry. Paper prices are expected to move higher reflecting continued realization of the announced price increases, while annual outage costs are expected to be lower.

Packaging Corporation currently sports a Zack Rank #1 (Strong Buy). Other similarly ranked stocks in the same space include Acacia Research Corporation ACTG, Performant Financial Corporation PFMT and Berry Plastics Group, Inc. BERY. You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 30 days  Zacks Consensus Estimate for Acacia Research has remained unchanged. Its share price has increased 48.48% year to date.

Performant Financial witnessed an upward earnings estimate revision of approximately 50% over the past 60 days. Its share price has gained 45.25% year to date.

Over the past 60 days, the Zacks Consensus Estimate for Berry Plastics has seen upward earnings estimate revision of approximately 12.5%. Its share price has increased 25.76% year to date.

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