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WestRock Scales New 52-Week High: What's Driving the Rally?

Zacks Equity Research

Shares of WestRock Company WRK scaled a fresh 52-week high of $43.29 during trading session on Dec 23, before retracting a bit to close at $43.18. Continued investment in projects and the KapStone acquisition have contributed to this rally.

WestRock, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $10.9 billion. The company has an expected long-term earnings per share growth rate of 4.3%. It surpassed the Zacks Consensus Estimate over the trailing four quarters, the average positive beat being 10.51%.

Shares of WestRock have gained 14.3% so far this year, as against the industry’s decline of 0.8%.



Driving Factors

The company plans to invest approximately $1 billion in business till fiscal 2021. This is anticipated to generate $240 million in annualized EBITDA. In fiscal 2019, the company completed strategic capital projects at its Porto Feliz corrugated box plant in Sao Paulo, Brazil, Cottonton, AL and Covington, VA mills.

During fiscal 2018 and 2019, the company completed acquisitions of Schlüter, Plymouth Packaging and rival KapStone Paper and Packaging Corp that expanded its product offerings and geographic presence. The integration of KapStone Paper, the most notable acquisition among these, is on track. The company anticipates cost synergies and performance improvements of more than $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 buyout will help the company strengthen its presence in the Western United States and compete better in the region’s growing agricultural markets. It will also fast-track margin improvement in its North American corrugated packaging business. The company continues to evaluate potential acquisitions for the days ahead.

WestRock is focused on productivity and performance-improvement programs across its manufacturing footprint, which, in turn, will expand margins. Also, the company announced that it is reconfiguring its North Charleston, SC, paper mill to boost 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 associated infrastructure.

Stocks to Consider

Some better-ranked stocks in the Basic Materials space are General Moly, Inc GMO, Franco-Nevada Corp. FNV and Sandstorm Gold Ltd SAND, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Moly has an expected earnings growth rate of 12.5% for the current fiscal year. The company’s shares have gained 7.2% in the past year.

Franco-Nevada has a projected earnings growth rate of 45.3% for 2019. The stock has rallied 36.5% in a year’s time.

Sandstorm Gold has an estimated earnings growth rate of 166.7% for the ongoing year. Its shares have appreciated 45.9% over the past year.

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