Reasons to Hold Packaging Corp (PKG) Stock in Your Portfolio
Packaging Corporation of America PKG is well-positioned to capitalize on the increasing demand driven by e-commerce activities. The steady demand for consumer goods, such as food, beverages, medication and other products, further supports the positive outlook for the Packaging segment. The company's growth is also expected to be boosted by strategic acquisitions.
Let’s delve deeper and analyze the factors that make this stock worth holding on to at present.
Improvement in Order Levels: During the first half of 2023, the Packaging segment witnessed lesser sales and production volumes due to a fall in demand, with customers lowering their inventories. The segment, however, witnessed an improvement in demand in the third quarter of 2023 as customer ordering patterns resumed normal levels.
Through the third quarter, the company balanced its containerboard production according to demand levels. To this end, it had idled its Wallula, WA 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 during the fourth quarter to bring inventories to the desired levels.
In the Packaging segment, less market-related downtime is expected to favor results in the fourth quarter of 2023. 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 results. These tailwinds are expected to boost performance in the upcoming quarters as well.
Demand in E-Commerce to Aid Growth: Despite the current weakness, Packaging Corp stands to gain from strong growth in e-commerce activities that will continue to fuel 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.
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 28% in the past year compared with the industry’s 0.3% growth.
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Estimates Northbound: The Zacks Consensus Estimate for the company’s fiscal 2023 earnings has moved up 2% in the past 60 days. For 2024, the consensus mark has increased 1% in the past 60 days.
Positive Earnings Surprise: PKG has a trailing four-quarter average earnings surprise of 6.8%.
Near-Term Concerns
Labor costs and certain indirect costs are expected to remain elevated. Operating and converting costs are anticipated to increase, driven by higher recycled fiber prices, seasonal energy costs and the re-start of the Wallula mill. Due to these factors, Packaging Corp anticipates fourth-quarter 2023 earnings per share to be lower on a sequential basis.
Zacks Rank & Stocks to Consider
Packaging Corp currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are Crane Company CR, Applied Industrial Technologies AIT and A. O. Smith Corporation AOS.
CR currently sports a Zacks Rank #1 (Strong Buy), and AIT and AOS each 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 Crane Company’s 2023 earnings per share is pegged at $4.18. 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 29.8%. CR shares have rallied 44% in a year.
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 37% in a year.
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 41% in the past year.
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