WestRock Company WRK remains well-poised for growth, backed by focus on continued investment in growth projects and the KapStone acquisition. Further, productivity and performance improvement programs across manufacturing footprint will aid results.
The provider of paper and packaging solutions with a market capitalization of $9.7 billion, carries a Zacks Rank #3 (Hold).
Factors Favoring WestRock
Positive Earnings Surprise History: WestRock outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 10.90%.
Earnings Ahead of Industry: Over the past five years, WestRock delivered earnings growth of 16.3%, higher than the industry’s 11.0%. The stock has an estimated long-term earnings growth rate of 4.5%.
Price Performance: Shares of WestRock have gained 3.5% so far this year, against the industry’s decline of 7.3%.
Higher Inventory Turnover Ratio: Over the trailing 12 months, the inventory turnover ratio for WestRock has been 7.03% compared with the industry's level of 6.16%. The higher the metric is, faster will be the rate at which it is sold, suggesting effective inventory management.
Growth Drivers in Place
WestRock’s acquired rival KapStone Paper and Packaging Corp last year and the integration is on track. The company anticipates cost synergies and performance improvements of around $200 million by the end of fiscal 2021. KapStone’s corrugated packaging operations will enhance WestRock’s North American corrugated packaging business and provide complementary products. The acquisition will help the company strengthen presence in Western United States and to compete better in the growing agricultural markets in the region. It also fast-tracks its target to improve margins of its North American corrugated packaging business.
WestRock will also be able broaden portfolio of paper grades, allowing it to tap into the kraft bag market with the inclusion of KapStone's complementary specialty kraft paper offerings. Further, the deal will augment WestRock’s portfolio of virgin fiber-based paper from 65% to 67%.
The company continues to focus on productivity and performance improvement programs across its manufacturing footprint, which will continue to aid margins. Recently, WestRock announced that it is reconfiguring its North Charleston, SC, paper mill to improve the long-term competitiveness of the mill. The move is expected to increase the company’s annual EBITDA by approximately $40 million, primarily owing to the reduction in operating costs from the shutdown of the paper machine and its associated infrastructure.
WestRock plans to invest approximately $1.4 billion of capital in its business in fiscal 2019. The company also provided capital expenditure target of $1.1 billion in fiscal 2020 and approximately $900 million to $1.0 billion a year in fiscal 2021. This in turn will generate $240 million in annualized EBITDA.
Investors might want to hold on to the stock for the moment as it shows ample prospects of outperforming its peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Basic Materials sector are Arconic Inc. ARNC, Franco-Nevada Corporation FNV and Royal Gold, Inc. RGLD. All of these stocks carry a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arconic has a projected earnings growth rate of 50% for the current year. The stock has gained 59.5% so far this year.
Franco-Nevada has an estimated earnings growth rate of 33.91% for 2019. The company’s shares have gained 33% year to date.
Royal Gold has an expected earnings growth rate of 77.76% for the ongoing year. The stock has appreciated 45% over the past year.
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