Reasons to Hold Packaging Corp (PKG) Stock in Your Portfolio
Packaging Corporation of America PKG has been gaining from demand stemming from e-commerce activities. This is impressive, given the ongoing inflationary pressures, high interest rates and persisting supply-chain disruptions.
Strategic acquisitions will also aid growth of the company.
Let’s delve deeper and analyze the factors that make this stock worth holding on to at present.
Demand in E-Commerce to Aid Growth: Despite the current weakness, Packaging Corp stands to gain from strong growth in e-commerce activities that has led to increased demand for packaging.
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.
Optimistic Outlook: In the third quarter of 2023, shipments per day are anticipated to improve sequentially despite one less shipping day for the corrugated business.
In the Paper segment, volumes are expected to pick up, aided by back-to-school shipments. These tailwinds are expected to boost performance in the upcoming quarters as well.
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 products 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.
Price Performance: Packaging Corp’s shares have gained 1.1% in the past year against the industry’s fall of 10.2%.
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Near-Term Concerns
Global and domestic economic conditions continue to be less favorable, with ongoing inflationary pressures, high interest rates and persisting supply-chain disruptions. As customers are working to lower their high inventory levels, it has impacted the order flow and demand for Packaging Corp’s products.
Containerboard production in the upcoming quarters will likely be lower as the company plans to match production with demand. The company anticipates lower prices in the Packaging segment in the third quarter of 2023 as a result of the recent decreases in the published domestic containerboard prices, as well as lower export prices.
In the Paper segment, prices are suggested to trend lower based on the recent declines in index prices.
Packaging Corp expects to complete the scheduled annual maintenance outage and the first phase of the containerboard conversion work on the No. 3 machine at the Jackson, AL-based mill. The No.3 machine has reached the first-phase design capacity and is producing high-quality virgin linerboard. However, given the current containerboard demand, the company decided to postpone the second phase of the conversion work until 2024.
Zacks Rank & Stocks to Consider
Packaging Corp currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are Worthington Industries, Inc. WOR, Astec Industries, Inc. ASTE and A. O. Smith Corporation AOS. WOR and ASTE sport a Zacks Rank #1 (Strong Buy) at present, and AOS has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Worthington Industries has an average trailing four-quarter earnings surprise of 14.9%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $5.65 per share. The consensus estimate for 2023 earnings has moved north by 22.6% in the past 60 days. Its shares gained 33.5% in the last year.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares gained 22.8% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS gained 11.1% in the last year.
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Worthington Industries, Inc. (WOR) : Free Stock Analysis Report
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Packaging Corporation of America (PKG) : Free Stock Analysis Report
