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Paper & Plastic Packaging Industry Rides on E-Commerce Boom

Zacks Equity Research

The Zacks Containers - Paper And Packaging industry is poised to grow on booming e-commerce, favorable consumer spending, strong labor market and rising government expenditures. Further, rapid urbanization and rising purchasing power in Asia will sustain demand for the packaging industry, going forward.

E-commerce Boom: A Key Catalyst

The booming e-commerce market continues to propel demand in the paper and packaging industry. Online shopping has become one of the most popular online activities worldwide. Packaging has gained utmost importance as it has to maintain the integrity and durability of a product so that it can withstand the complex product delivery process. Per Statista, global retail e-commerce sales are set to grow to $4.88 trillion in 2021 from $2.3 trillion in 2017.

In developed markets, e-commerce has already become second nature for consumers, with developing countries rapidly catching up. India is one of the fastest growing e-commerce markets and is expected to skyrocket to $200 billion by 2026 from $39 million in 2017, thanks to the ongoing digital transformation in the country. Among others, South East Asia and Latin America hold promise.
 
Innovative Products & Strong Markets Will Fuel Growth

Notably, demand in the industry is usually fairly stable across economic cycles, owing to its high exposure (more than 60%) to stable consumer-oriented end-markets, such as food and beverages and healthcare as they include essentials utilized in day-to-day lives. This ensures stability, steady growth and earnings for the industry.
 
Demand for sophisticated packaging is on the rise and the industry is constantly striving to meet this by adopting new technology and innovative products. It is capitalizing on growing global demand for eco-friendly biodegradable packaging materials spurred by environmental concerns. Nowadays, packaging is not only containing and protecting the product but also includes sustainable packaging solutions to cater to increasing consumer awareness on environmental issues. Consequently, industry players will benefit from focus on maintaining quality of the package, conforming to industry-standards and ability to minimize carbon footprint.
 
Focus on Reducing Costs Will Help Combat Inflation
 
Apart from high raw material costs, the industry lately has been affected by rising transportation costs, chemical costs and fuel costs. The companies have to transfer inflation to customers, but it may not be always feasible due to the competition. Consequently, the companies are now focusing on reducing costs, improving productivity and in turn increasing profitability.
 
Industry Valuation is Inexpensive
 
The Containers - Paper And Packaging industry is housed within the broader Zacks Industrial Products sector. Year to date, the industry has gained 21%, outperforming the Industrial Products sector’s rise of 19%.

The industry’s valuation looks cheap now. On the basis of trailing 12-month EV/EBITDA ratio, we see that the industry is currently trading at 11.4 compared with Industrial Products sector’s EV/EBITDA of 14.2.
 
Investors keen on the Containers - Paper And Packaging industry may consider Bemis Company, Inc. BMS which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Investors may also retain Zacks Rank #3 (Hold) stocks like Sealed Air Corporation SEE, Sonoco Products Company SON and AptarGroup Inc. ATR. All these stocks have a positive earnings surprise history in the last four quarters and positive growth estimates for the current year.
 
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