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Packaging Corporation Rides on E-Commerce Boom, Risks Remain

Zacks Equity Research

On Oct 27, we issued an updated research report on Packaging Corporation of America PKG. The company is poised to gain from solid demand, e-commerce boom and acquisitions. However, its results will be marred by inflation.

Let’s illustrate the factors in detail.

Solid Demand to Assist Q4 Results, Inflation Ails

Packaging Corporation projects fourth-quarter 2018 earnings of around $2.15 per share, reflecting year-over-year growth of 38%. The company anticipates solid demand in the Packaging segment. Its Paper segment will also benefit from price increases and strong demand.

However, fuel costs will be higher in fourth-quarter 2018 due to seasonally colder weather. The company’s results will also be hurt by prevailing inflation in operating and converting costs, including incremental wage pressure with a tighter labor market. It will also have an extended outage at the Wallula Mill to complete the remaining work related to the conversion of the No. 3 machine from paper to linerboard. Considering these items,

Packaging Corporation to Gain From E-commerce Boom

Packaging Corporation will benefit from the e-commerce boom that will spur demand in boxes. These days, customers find a lot of different channels to sell-through, including e-commerce. The company has a wide base of customers and expects its business to grow in the near term.

Sacramento Container Buyout to Drive Growth

In October 2017, Packaging Corporation completed the Sacramento Container acquisition. Activities are well underway to optimize and integrate these facilities into its Packaging business platform. This buyout is likely to boost the company’s operations geographically and strategically in the near future.

Share Price Performance

Over the past year, Packaging Corporation has underperformed the industry with respect to price performance. The stock has depreciated 30%, wider than the nearly 21% decline witnessed by the industry.

Zacks Rank & Key Picks

Packaging Corporation carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include W.W. Grainger, Inc. GWW, CECO Environmental Corp. CECE and Northwest Pipe Company NWPX. All three stocks carry a Zacks Rank #2(Buy).You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Grainger has a long-term earnings growth rate of 12.4%. The stock has gained around 19% in a year’s time.

CECO has a long-term earnings growth rate of 15%. Its shares have jumped 29% in the past year.

Northwest Pipe has a long-term earnings growth rate of 10%. The company’s shares have been up 18% during the past year.

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