Chicago, IL – March 15, 2024 – Today, Zacks Equity Research discusses Packaging Corporation of America PKG, AptarGroup ATR and Greif, Inc. GEF.
Link: https://www.zacks.com/commentary/2240722/3-stocks-to-watch-in-the-thriving-paper-plastic-packaging-industry
The Zacks Containers - Paper and Packaging industry will continue to benefit from solid demand from consumer-oriented end-markets, as packaging is integral to product distribution. Booming e-commerce activities, and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will continue to aid the industry’s growth. Pricing actions implemented by the industry players will help offset the impacts of the ongoing supply-chain disruptions and rising costs.
Companies like Packaging Corporation of America, AptarGroup and Greif, Inc. are set to gain from these demand trends.
The Zacks Containers - Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. The packaging solutions provided by the industry help protect and preserve products, extend the shelf life, and cut down on wastage and loss across the wide and lengthy range of distribution channels. The products range from containerboard and corrugated packaging to flexible and rigid plastic packaging.
Some companies manufacture dispensing pumps, closures, aerosol valves and applicators for the beauty, personal, home care and healthcare markets. The industry serves a wide array of markets, including food, beverage, food services and other consumer products, such as beauty, personal care and home care. They also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets, to name a few.
E-commerce Acts as a Key Catalyst: With the rise of e-commerce, packaging has gained the utmost importance, as it helps maintain the integrity of the product and withstand the complexities of delivery. Also, the industry has significant exposure (more than 60%) to consumer-oriented end markets, such as food and beverages and healthcare, keeping the demand for packaging applications stable across economic cycles.
According to Statista, global e-commerce sales were $5.8 trillion in 2023. This figure is expected to reach $8 trillion by 2027, seeing a CAGR of 8.4%. In 2023, e-commerce accounted for more than 19% of retail sales worldwide. This share is expected to increase to 25% by 2027. The United States is expected to lead the retail e-commerce development, witnessing a CAGR of 11.82% over 2024-2028.
Revenues from the U.S. e-commerce market were $669.5 billion in 2023 in. It is anticipated to surpass the $1-trillion mark in 2027. For 2029, the market is expected to be $1.145 trillion. India and Mexico are likely to follow suit, seeing a CAGR of 11.79% and 11.71%, respectively in 2024-2028. This presents a major growth opportunity for the Containers - Paper and Packaging industry.
Demand for Eco-Friendly Packaging to Aid Industry: The preference for environmentally friendly biodegradable packaging materials is witnessing a steady rise globally, courtesy of customers’ increasing awareness of environmental issues. The industry is constantly striving to meet the same by adopting the latest technology and bringing innovative products. Industry players have begun incorporating recycled content into production methods. By maximizing recycling, the industry can implement environmentally and economically sustainable production methods.
Pricing to Counter Impacts of Costs on Margins: The industry participants continue to witness higher raw material costs, stemming from various factors like general inflationary pressure, limited availability of certain raw materials and global transportation disruptions. Higher labor, transportation and chemical costs aggravated their woes. The shortage of labor is another concern. The companies have been implementing cost-reduction actions for a while, which are likely to sustain margins. They focus on streamlining their operations and realigning with high-growth key markets to bolster their performances.
The Zacks Containers - Paper and Packaging industry is a 10-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #93, which places it at the top 37% of the 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few Containers - Paper and Packaging stocks that can be retained in one’s portfolio, it is worth taking a look at the industry’s stock-market performance and valuation picture.
The Containers - Paper and Packaging industry has underperformed the S&P 500 and the sector over the past year. The industry has gained 9.1% compared with the S&P 500’s growth of 32.1%. Meanwhile, the Industrial Products sector has gained 23%.
The forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Containers - Paper and Packaging companies, shows that the industry is currently trading at 19.66 compared with the S&P 500’s 12.25 and the Industrial Products sector’s forward 12-month EV/EBITDA of 18.54.
Over the last five years, the industry traded as high as 30.08X and as low as 10.96X, with the median at 18.57X.
AptarGroup: The company’s Beauty segment will continue to gain from increased demand for beauty and personal care markets. The Pharma segment is witnessing steady demand growth for prescription and consumer healthcare. Given the ongoing sales momentum in elastomer components and active material solutions, AptarGroup is expanding its capacity to produce elastomer components for injected medicines and active material science solutions, which will drive near-term growth.
The company is progressing well on its business transformation plan that will drive top-line growth, boost operational excellence, enhance its approach to innovation and improve organizational effectiveness. Backed by its efforts to bring new products into the market, the company remains the preferred choice for renowned brands worldwide. Focus on acquisitions to expand the scope of technologies, geographic presence and product offerings will also aid growth. Shares of ATR have gained 22.7% over the past year.
The Zacks Consensus Estimate for AptarGroup’s fiscal 2024 earnings has moved 2.8% north in the past 60 days. The figure indicates year-over-year growth of 8.6%. This Crystal Lake, IL-based company has a trailing four-quarter earnings surprise of 7.8%, on average. The stock estimated a long-term growth rate of 7% and has a Zacks Rank #2 (Buy) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Packaging Corp: The company’s packaging business, which accounts for around 91% of its revenues, has been benefiting from strong demand in e-commerce, and stable demand for the packaging of meat, fruit and vegetables, processed food, beverages, and medicines. In the fourth quarter of 2023, PKG’s outside sales volume of containerboard increased 88,000 tons year over year and 17,000 tons sequentially.
The company's order backlog and containerboard cut-up remained strong in the quarter. In the Packaging segment, Packaging Corp anticipates increased total corrugated product shipments in 2024 due to ongoing robust demand in the first quarter and two additional shipping days. In the Paper segment, the company expects an improved mix to move prices slightly higher. These tailwinds are expected to boost its performance in the upcoming quarters. PKG shares have gained 40% in the past year.
The Zacks Consensus Estimate for Packaging Corp’s ongoing year’s earnings has been revised 2% upward in the past 60 days. PKG has a trailing four-quarter earnings surprise of 10.1%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 5%. The company currently carries a Zacks Rank #3 (Hold).
Greif: The company has been active on the acquisition front lately. In October 2023, it announced plans to acquire IPACKCHEM, a global leader in premium barrier and non-barrier jerry cans, and small plastic containers. It is expected to immediately boost GEF’s EBITDA margins and free cash flow. Additionally, in October 2023, the company acquired Reliance Products, a leading producer of high-performance barrier and conventional blow-molded jerrycans and small plastic containers in Canada.
With this buyout, Greif added to its portfolio of barrier technologies. In August 2023, GEF acquired 51% of the ownership interest in ColePak, the second-largest supplier of paper partitions in North America. This added a completely new product offering to the company’s paper converting portfolio, and offers incremental integration benefits to its containerboard and uncoated recycled board mills. In April 2023, Greif increased its stake in Centurion Container from approximately 10% to 80%, enhancing its resin-based offering and the Intermediate Bulk Containers business in North America.
The company’s M&A pipeline remains solid and it plans to continue to deploy capital toward value-accretive targets. Greif has been implementing cost rationalization measures and recently announced a price increase, which will aid its earnings. GEF shares have gained 4% in the past year.
The Zacks Consensus Estimate for Greif’s fiscal 2024 earnings has been revised 13.6% upward over the past 60 days. Greif has a trailing four-quarter earnings surprise of 150.6%, on average. The Delaware, OH-based player has an estimated long-term earnings growth rate of 10% and currently carries a Zacks Rank #3.
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