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5 Top Stocks to Tap in a Prospering Paper Packaging Industry
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The Zacks Containers – Paper and Packaging industry is poised to grow on robust demand for food, beverage and hygiene products amid the coronavirus pandemic, as packaging is an essential element for the distribution of these products. The industry is also benefiting from the booming e-commerce activities due to the stay-at-home restrictions. Surging demand for eco-friendly packaging options will also keep driving growth.
Amcor plc (AMCR - Free Report) , Packaging Corporation of America (PKG - Free Report) , Berry Global Group, Inc. (BERY - Free Report) , Sealed Air Corporation (SEE - Free Report) and UFP Technologies, Inc. (UFPT - Free Report) are some stocks, which are likely to benefit from these trends. However, pandemic-induced bleak paper demand is a headwind for the industry.
Industry Description
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic-based packaging products utilized in consumer and industrial end markets. The industry players’ products range from containerboard and corrugated packaging to flexible and rigid plastic packaging.
The industry serves a wide array of markets, including food, beverage, foodservices and other consumer products, such as beauty, personal care and home care. Some of the industry participants also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets.
What’s Shaping the Future of the Containers - Paper and Packaging Industry?
Rising Demand for Essential Products & E-commerce: The industry’s considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages, and healthcare, keeps the demand for packaging applications fairly stable across economic cycles. Moreover, the coronavirus pandemic has led to a surge in demand for essential products, such as food, medicine, medical equipment and other critical products. This, in turn, is fueling demand for the industry’s packaging solutions. With rising e-commerce activities over the past few years, packaging has gained importance as it has to maintain the integrity and durability of a product to withstand the complex product-delivery process. The pandemic has further led to a spike in e-commerce activities, following the stay-at-home orders imposed all over. According to Statista, revenues in the e-commerce market are expected to see a CAGR of 8.2% over 2020-2024, which will continue supporting the industry.
Focus on Eco-Friendly Packaging: Demand for sophisticated packaging has been shooting up, and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is also likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, backed by customers’ increasing awareness on environmental issues. Industry players have already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods.
Pandemic-induced Bleak Paper Demand: The pandemic has adversely impacted paper consumption in schools, offices and businesses, straining paper demand. Consequently, the packaging companies had to idle their paper-mill operations to reduce paper production. The current demand-supply imbalance for paper products is a concern for the industry, which has already been reeling under the unfavorable impact of increased digitization. Although the food and beverage market are rapidly growing across the globe, parts of these markets, including food services and restaurants, have been affected significantly by the pandemic. Closure of food outlets have thwarted demand for food-grade paper packaging products. The industry has also been facing high raw material costs, and rising transportation and chemical costs. Therefore, these companies are now focusing on reducing costs and improving productivity to boost margins.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Containers - Paper and Packaging industry is an 11-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #61, which places it at the top 24% of the 254 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 outperform 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’s worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Containers - Paper and Packaging industry has underperformed the S&P 500 and the sector over the past year. The stocks in this industry have gained 10% compared with the S&P 500’s growth of 16.1% and the Industrial Products sector’s 16.7% rise.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the forward12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Containers - Paper and Packaging companies, we see that the industry is currently trading at 17.31x compared with the S&P 500’s 14.23x and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.44x. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Over the last five years, the industry has traded as high as 30.07x and as low as 10.95x, with the median at 13.40x.
5 Containers - Paper and Packaging Stocks to Keep a Close Eye On
Sealed Air Corporation: Based in Charlotte, NC, Sealed Air is a global leader in food safety and security and product protection. The company’s top-line results are likely to benefit from demand for packaging for essential goods and e-commerce amid the coronavirus crisis. Moreover, Sealed Air has been making steady progress on its reformation plan — Reinvent SEE Strategy — focused on stoking bottom-line growth. Apart from this, the company is anticipated to benefit from acquisitions, cost reductions, driving operational excellence and new innovations.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 1.7% over the past 60 days to $2.93. The company’s shares have gained 45.4% over the past six months. It has a trailing four-quarter average earnings surprise of 17.8% and currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: SEE
Amcor: Based in Zurich, Switzerland, Amcor develops, manufactures, and sells various packaging products for food, beverage, pharmaceutical, medical, home and personal care as well as to other consumer goods end markets worldwide. It is poised to gain from solid packaging demand for essential products and cost synergies related to the Bemis acquisition. Amcor is focused on investments in innovation to support its long-term commitment to sustainable packaging solutions. It is on track to fulfill its obligation to develop all of the company’s packaging to be recyclable by 2025.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has moved 1.5% north over the past 60 days to 69 cents. The stock has gained 33.1% over the past six months. The company currently carries a Zacks Rank #3 and has a trailing four-quarter earnings surprise of 7.2%, on average.
Price & Consensus: AMCR
Packaging Corporation of America: Based in Lake Forest, IL, Packaging Corporation is the third largest producer of containerboard products and uncoated freesheet paper in North America. The company’s packaging business, which contributes around 85% of its revenues, is gaining from elevated demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products in the wake of the pandemic. Further, it is poised to gain from the e-commerce boom that will spur demand for boxes.
The Zacks Consensus Estimate for the company’s ongoing-year earnings has been revised 0.4% upward in 60 days’ time to $5.31. The company’s shares have gained 38.9% over the past six months. It currently carries a Zacks Rank of 2 and has a trailing four-quarter average earnings surprise of 8.5%.
Price & Consensus: PKG
UFP Technologies: Based in Newburyport, MA, UFP Technologies is an innovative designer and custom manufacturer of components, subassemblies, products and packaging primarily for the medical market. It is poised to benefit from organic growth as well as through strategic acquisitions. The company’s focus on growing its Engineering services business bodes well for revenue growth in 2021 and beyond. Its strong cash position, coupled with substantial borrowing capacity, enables UFP Technologies to continue investing in both internal and external growth opportunities as well as focus on efficiency improvements to enhance competitive position.
The Zacks Consensus Estimate for the company’s 2020 earnings has moved 7.9% upward over the past 60 days to $1.64. The company has a trailing four-quarter average earnings surprise of 28.4%. This Zacks Ranked #2 stock has declined 4.5% over the past six months.
Price & Consensus: UFPT
Berry Global Group: This Zacks Rank #3 Evansville, IN-based company manufactures and distributes non-woven specialty materials, engineered materials and consumer packaging products. It also serves personal care, healthcare as well as beverage and food markets. It will likely gain from the soaring demand across the healthcare, hygiene and grocery end-markets. Moreover, the company’s RPC Group buyout has been opening up growth opportunities in the plastic and recycled packaging industry. Improving operational productivity and cost-reduction actions will propel the company’s near-term performance.
The Zacks Consensus Estimate for the company’s fiscal 2020 earnings has moved 1.3% north in the past 60 days to $4.51. The stock has appreciated 38.2% over the past six months. The company has a trailing four-quarter earnings surprise of 16.3%, on average.
Price & Consensus: BERY
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
Image: Shutterstock
5 Top Stocks to Tap in a Prospering Paper Packaging Industry
The Zacks Containers – Paper and Packaging industry is poised to grow on robust demand for food, beverage and hygiene products amid the coronavirus pandemic, as packaging is an essential element for the distribution of these products. The industry is also benefiting from the booming e-commerce activities due to the stay-at-home restrictions. Surging demand for eco-friendly packaging options will also keep driving growth.
Amcor plc (AMCR - Free Report) , Packaging Corporation of America (PKG - Free Report) , Berry Global Group, Inc. (BERY - Free Report) , Sealed Air Corporation (SEE - Free Report) and UFP Technologies, Inc. (UFPT - Free Report) are some stocks, which are likely to benefit from these trends. However, pandemic-induced bleak paper demand is a headwind for the industry.
Industry Description
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic-based packaging products utilized in consumer and industrial end markets. The industry players’ products range from containerboard and corrugated packaging to flexible and rigid plastic packaging.
The industry serves a wide array of markets, including food, beverage, foodservices and other consumer products, such as beauty, personal care and home care. Some of the industry participants also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets.
What’s Shaping the Future of the Containers - Paper and Packaging Industry?
Rising Demand for Essential Products & E-commerce: The industry’s considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages, and healthcare, keeps the demand for packaging applications fairly stable across economic cycles. Moreover, the coronavirus pandemic has led to a surge in demand for essential products, such as food, medicine, medical equipment and other critical products. This, in turn, is fueling demand for the industry’s packaging solutions. With rising e-commerce activities over the past few years, packaging has gained importance as it has to maintain the integrity and durability of a product to withstand the complex product-delivery process. The pandemic has further led to a spike in e-commerce activities, following the stay-at-home orders imposed all over. According to Statista, revenues in the e-commerce market are expected to see a CAGR of 8.2% over 2020-2024, which will continue supporting the industry.
Focus on Eco-Friendly Packaging: Demand for sophisticated packaging has been shooting up, and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is also likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, backed by customers’ increasing awareness on environmental issues. Industry players have already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods.
Pandemic-induced Bleak Paper Demand: The pandemic has adversely impacted paper consumption in schools, offices and businesses, straining paper demand. Consequently, the packaging companies had to idle their paper-mill operations to reduce paper production. The current demand-supply imbalance for paper products is a concern for the industry, which has already been reeling under the unfavorable impact of increased digitization. Although the food and beverage market are rapidly growing across the globe, parts of these markets, including food services and restaurants, have been affected significantly by the pandemic. Closure of food outlets have thwarted demand for food-grade paper packaging products. The industry has also been facing high raw material costs, and rising transportation and chemical costs. Therefore, these companies are now focusing on reducing costs and improving productivity to boost margins.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Containers - Paper and Packaging industry is an 11-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #61, which places it at the top 24% of the 254 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 outperform 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’s worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Containers - Paper and Packaging industry has underperformed the S&P 500 and the sector over the past year. The stocks in this industry have gained 10% compared with the S&P 500’s growth of 16.1% and the Industrial Products sector’s 16.7% rise.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the forward12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Containers - Paper and Packaging companies, we see that the industry is currently trading at 17.31x compared with the S&P 500’s 14.23x and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.44x. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Over the last five years, the industry has traded as high as 30.07x and as low as 10.95x, with the median at 13.40x.
5 Containers - Paper and Packaging Stocks to Keep a Close Eye On
Sealed Air Corporation: Based in Charlotte, NC, Sealed Air is a global leader in food safety and security and product protection. The company’s top-line results are likely to benefit from demand for packaging for essential goods and e-commerce amid the coronavirus crisis. Moreover, Sealed Air has been making steady progress on its reformation plan — Reinvent SEE Strategy — focused on stoking bottom-line growth. Apart from this, the company is anticipated to benefit from acquisitions, cost reductions, driving operational excellence and new innovations.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 1.7% over the past 60 days to $2.93. The company’s shares have gained 45.4% over the past six months. It has a trailing four-quarter average earnings surprise of 17.8% and currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: SEE
Amcor: Based in Zurich, Switzerland, Amcor develops, manufactures, and sells various packaging products for food, beverage, pharmaceutical, medical, home and personal care as well as to other consumer goods end markets worldwide. It is poised to gain from solid packaging demand for essential products and cost synergies related to the Bemis acquisition. Amcor is focused on investments in innovation to support its long-term commitment to sustainable packaging solutions. It is on track to fulfill its obligation to develop all of the company’s packaging to be recyclable by 2025.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has moved 1.5% north over the past 60 days to 69 cents. The stock has gained 33.1% over the past six months. The company currently carries a Zacks Rank #3 and has a trailing four-quarter earnings surprise of 7.2%, on average.
Price & Consensus: AMCR
Packaging Corporation of America: Based in Lake Forest, IL, Packaging Corporation is the third largest producer of containerboard products and uncoated freesheet paper in North America. The company’s packaging business, which contributes around 85% of its revenues, is gaining from elevated demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products in the wake of the pandemic. Further, it is poised to gain from the e-commerce boom that will spur demand for boxes.
The Zacks Consensus Estimate for the company’s ongoing-year earnings has been revised 0.4% upward in 60 days’ time to $5.31. The company’s shares have gained 38.9% over the past six months. It currently carries a Zacks Rank of 2 and has a trailing four-quarter average earnings surprise of 8.5%.
Price & Consensus: PKG
UFP Technologies: Based in Newburyport, MA, UFP Technologies is an innovative designer and custom manufacturer of components, subassemblies, products and packaging primarily for the medical market. It is poised to benefit from organic growth as well as through strategic acquisitions. The company’s focus on growing its Engineering services business bodes well for revenue growth in 2021 and beyond. Its strong cash position, coupled with substantial borrowing capacity, enables UFP Technologies to continue investing in both internal and external growth opportunities as well as focus on efficiency improvements to enhance competitive position.
The Zacks Consensus Estimate for the company’s 2020 earnings has moved 7.9% upward over the past 60 days to $1.64. The company has a trailing four-quarter average earnings surprise of 28.4%. This Zacks Ranked #2 stock has declined 4.5% over the past six months.
Price & Consensus: UFPT
Berry Global Group: This Zacks Rank #3 Evansville, IN-based company manufactures and distributes non-woven specialty materials, engineered materials and consumer packaging products. It also serves personal care, healthcare as well as beverage and food markets. It will likely gain from the soaring demand across the healthcare, hygiene and grocery end-markets. Moreover, the company’s RPC Group buyout has been opening up growth opportunities in the plastic and recycled packaging industry. Improving operational productivity and cost-reduction actions will propel the company’s near-term performance.
The Zacks Consensus Estimate for the company’s fiscal 2020 earnings has moved 1.3% north in the past 60 days to $4.51. The stock has appreciated 38.2% over the past six months. The company has a trailing four-quarter earnings surprise of 16.3%, on average.
Price & Consensus: BERY
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
Click Here, See It Free >>