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4 Packaging Stocks to Watch Amid Industry Headwinds
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The Zacks Containers – Paper and Packaging industry will gain on robust demand for food, beverage and hygiene products, as packaging is integral to the distribution of these products. Booming e-commerce activities and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will also favor the industry. However, coronavirus-induced volatilities, supply chain disruptions and rising material and other costs remain concerns.
Amcor plc (AMCR - Free Report) , Packaging Corporation of America (PKG - Free Report) , Sealed Air Corporation (SEE - Free Report) and UFP Technologies, Inc. (UFPT - Free Report) are set to gain from solid market prospects despite the abovementioned headwinds.
About the Industry
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. Their packaging solutions help protect and preserve products while extending shelf life and cutting down wastage across distribution channels. Their products range from containerboard and corrugated packaging to flexible and rigid plastic packaging. Some companies also 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. They 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 has a considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages, and healthcare, which keeps demand for packaging applications fairly stable across economic cycles. Moreover, the pandemic has triggered requirement for essential products, such as food, medicine, medical equipment and other critical products, which in turn has spurred demand for industry’s packaging solutions since last year. With rising e-commerce activities over the past few years and the pandemic further accelerating it, the importance of packaging has increased manifold as it helps maintain the integrity and durability of a product to withstand the complex product-delivery process. Per a Research and Markets report, the global e-commerce market is estimated to witness a CAGR of 22.9% from 2020 to 2027, which will continue supporting the industry.
Focus on Eco-Friendly Packaging: Demand for sophisticated packaging has been on the rise, and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, courtesy of customers’ increasing awareness about 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.
Impact of Pandemic Persists: Even though the food and beverage markets are rapidly growing globally, parts of these markets, including food services and restaurants, have been affected severely by the pandemic. Closures of food outlets thwarted demand for food-grade paper packaging products. The industry players, which cater to the healthcare markets, have been impacted by fewer elective surgeries and lower prescription trends on account of the COVID-19 pandemic. Companies that make dispensing systems for prestige beauty products witnessed low demand.
High Input Costs & Supply Chain Issues are Rampant: The industry participants have been encountering supply chain disruptions and higher raw material costs, which have been stemming from various factors including general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions. Higher labor, transportation and chemical costs add to their woes. Shortage of labor might also impact their production levels and impair their ability to meet the high demand.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Containers - Paper and Packaging industry is a 12-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #212, which places it at the bottom 16% 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 dim 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.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. Over the past month, the industry’s earnings estimates for the current year have dipped 1%.
Despite the bleak near-term prospects of the industry, we will present a few Containers - Paper and Packaging stocks that one can retain given their growth prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The 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 14.9% compared with the S&P 500’s rally of 30.6%. Meanwhile, the Industrial Products sector has appreciated 19.2%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-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 19.48x compared with the S&P 500’s 14.81x and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.22x. 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 14.89x.
4 Containers - Paper and Packaging Stocks to Keep an Eye On
Amcor: The company has been witnessing solid demand across a broad range of end markets, which led to a price appreciation of 2% in the past year. Backed by its strong balance sheet and annual free cash flow in excess of $1 billion, Amcor continues to invest in growth and expand capacity in higher and more packaging-intensive segments like healthcare, protein and premium coffee or hot fill beverage containers and barrier films. It will benefit from cost discipline and synergies related to the Bemis acquisition. Focus on innovation and sustainable packaging will also contribute to growth. It is the first global packaging company to have pledged to develop all its packaging to be recyclable or reusable by 2025.
The Zacks Consensus Estimate for Amcor’s fiscal 2022 earnings has moved up 1% over the past 90 days. The Zurich, Switzerland based company has a trailing four-quarter earnings surprise of 1.2%, on average. The company has an estimated long-term earnings growth rate of 7.1% and a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: AMCR
Packaging Corporation of America: The company’s packaging business, which accounts for around 89% of its revenues, has been benefiting from strong demand in e-commerce and rising requirement for packaging of meat, fruit and vegetables, processed food, beverages and medicines. The company’s shares have gained 1% in the past year. The company maintains a balanced approach toward capital allocation in order to boost growth and maximize returns for shareholders. Its focus on enhancing containerboard portfolio through organic box volume growth and strategic box plant acquisitions will also yield results.
The Zacks Consensus Estimate for Packaging Corporation’s ongoing-year earnings has been revised upward by 11% in the past 90 days. It has a Zacks Rank of 3 and a trailing four-quarter earnings surprise of 13%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 5%.
Price & Consensus: PKG
Sealed Air: Around 63% of Sealed Air’s revenues come from packaging of protein, foods, fluids and goods for the medical and life sciences industries. The food care business continues to benefit from the shift in demand for case ready, shrink bags and pre-packaged meals and snacks designed for home consumption. In the medical and life sciences portfolio, demand for protected packaging solutions for medical supplies, pharmaceuticals, and personal protective equipment remains high. E-commerce sales have been on the rise amid the stay-at-home scenario. Backed by these trends, the company’s shares have rallied 49% over the past year. Strong demand for automated equipment and sustainable packaging solutions continue to drive Sealed Air’s food and protected packaging segments. In addition, Sealed Air has been making steady progress on its reformation plan — Reinvent SEE Strategy — focused on stoking bottom-line growth. Apart from this, it is likely to benefit from acquisitions, cost reductions, driving operational excellence and new innovations.
The Zacks Consensus Estimate for Sealed Air’s 2021 earnings has been revised upward by 1% over the past 90 days. It has a trailing four-quarter earnings surprise of 6.5%, on average. The Charlotte, NC-based company has a Zacks Rank #3 and an estimated long-term earnings growth rate of 9.6%.
Price & Consensus: SEE
UFP Technologies: The company recently completed the acquisition of Contech Medical, which is a strategic fit and will help it expand its medical customer base. The buyout will be immediately accretive to earnings. The company remains committed to continue expanding its medical business given its excellent growth potential and high barriers to entry. UFP Technologies has been witnessing growth in its top-line performance in the past few quarters courtesy of improved demand in its end markets, which was instrumental in driving a rally of 51% in its share price over the past year.
The Zacks Consensus Estimate for UFP Technologies’ fiscal 2021 earnings has moved north by 5% in the past 90 days. The Newburyport, MA based company has a trailing four-quarter earnings surprise of 22.9%, on average. The company currently has a Zacks Rank #3.
Price & Consensus: UFPT
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4 Packaging Stocks to Watch Amid Industry Headwinds
The Zacks Containers – Paper and Packaging industry will gain on robust demand for food, beverage and hygiene products, as packaging is integral to the distribution of these products. Booming e-commerce activities and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will also favor the industry. However, coronavirus-induced volatilities, supply chain disruptions and rising material and other costs remain concerns.
Amcor plc (AMCR - Free Report) , Packaging Corporation of America (PKG - Free Report) , Sealed Air Corporation (SEE - Free Report) and UFP Technologies, Inc. (UFPT - Free Report) are set to gain from solid market prospects despite the abovementioned headwinds.
About the Industry
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. Their packaging solutions help protect and preserve products while extending shelf life and cutting down wastage across distribution channels. Their products range from containerboard and corrugated packaging to flexible and rigid plastic packaging. Some companies also 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. They 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 has a considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages, and healthcare, which keeps demand for packaging applications fairly stable across economic cycles. Moreover, the pandemic has triggered requirement for essential products, such as food, medicine, medical equipment and other critical products, which in turn has spurred demand for industry’s packaging solutions since last year. With rising e-commerce activities over the past few years and the pandemic further accelerating it, the importance of packaging has increased manifold as it helps maintain the integrity and durability of a product to withstand the complex product-delivery process. Per a Research and Markets report, the global e-commerce market is estimated to witness a CAGR of 22.9% from 2020 to 2027, which will continue supporting the industry.
Focus on Eco-Friendly Packaging: Demand for sophisticated packaging has been on the rise, and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, courtesy of customers’ increasing awareness about 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.
Impact of Pandemic Persists: Even though the food and beverage markets are rapidly growing globally, parts of these markets, including food services and restaurants, have been affected severely by the pandemic. Closures of food outlets thwarted demand for food-grade paper packaging products. The industry players, which cater to the healthcare markets, have been impacted by fewer elective surgeries and lower prescription trends on account of the COVID-19 pandemic. Companies that make dispensing systems for prestige beauty products witnessed low demand.
High Input Costs & Supply Chain Issues are Rampant: The industry participants have been encountering supply chain disruptions and higher raw material costs, which have been stemming from various factors including general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions. Higher labor, transportation and chemical costs add to their woes. Shortage of labor might also impact their production levels and impair their ability to meet the high demand.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Containers - Paper and Packaging industry is a 12-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #212, which places it at the bottom 16% 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 dim 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.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. Over the past month, the industry’s earnings estimates for the current year have dipped 1%.
Despite the bleak near-term prospects of the industry, we will present a few Containers - Paper and Packaging stocks that one can retain given their growth prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The 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 14.9% compared with the S&P 500’s rally of 30.6%. Meanwhile, the Industrial Products sector has appreciated 19.2%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-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 19.48x compared with the S&P 500’s 14.81x and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.22x. 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 14.89x.
4 Containers - Paper and Packaging Stocks to Keep an Eye On
Amcor: The company has been witnessing solid demand across a broad range of end markets, which led to a price appreciation of 2% in the past year. Backed by its strong balance sheet and annual free cash flow in excess of $1 billion, Amcor continues to invest in growth and expand capacity in higher and more packaging-intensive segments like healthcare, protein and premium coffee or hot fill beverage containers and barrier films. It will benefit from cost discipline and synergies related to the Bemis acquisition. Focus on innovation and sustainable packaging will also contribute to growth. It is the first global packaging company to have pledged to develop all its packaging to be recyclable or reusable by 2025.
The Zacks Consensus Estimate for Amcor’s fiscal 2022 earnings has moved up 1% over the past 90 days. The Zurich, Switzerland based company has a trailing four-quarter earnings surprise of 1.2%, on average. The company has an estimated long-term earnings growth rate of 7.1% and a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: AMCR
Packaging Corporation of America: The company’s packaging business, which accounts for around 89% of its revenues, has been benefiting from strong demand in e-commerce and rising requirement for packaging of meat, fruit and vegetables, processed food, beverages and medicines. The company’s shares have gained 1% in the past year. The company maintains a balanced approach toward capital allocation in order to boost growth and maximize returns for shareholders. Its focus on enhancing containerboard portfolio through organic box volume growth and strategic box plant acquisitions will also yield results.
The Zacks Consensus Estimate for Packaging Corporation’s ongoing-year earnings has been revised upward by 11% in the past 90 days. It has a Zacks Rank of 3 and a trailing four-quarter earnings surprise of 13%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 5%.
Price & Consensus: PKG
Sealed Air: Around 63% of Sealed Air’s revenues come from packaging of protein, foods, fluids and goods for the medical and life sciences industries. The food care business continues to benefit from the shift in demand for case ready, shrink bags and pre-packaged meals and snacks designed for home consumption. In the medical and life sciences portfolio, demand for protected packaging solutions for medical supplies, pharmaceuticals, and personal protective equipment remains high. E-commerce sales have been on the rise amid the stay-at-home scenario. Backed by these trends, the company’s shares have rallied 49% over the past year. Strong demand for automated equipment and sustainable packaging solutions continue to drive Sealed Air’s food and protected packaging segments. In addition, Sealed Air has been making steady progress on its reformation plan — Reinvent SEE Strategy — focused on stoking bottom-line growth. Apart from this, it is likely to benefit from acquisitions, cost reductions, driving operational excellence and new innovations.
The Zacks Consensus Estimate for Sealed Air’s 2021 earnings has been revised upward by 1% over the past 90 days. It has a trailing four-quarter earnings surprise of 6.5%, on average. The Charlotte, NC-based company has a Zacks Rank #3 and an estimated long-term earnings growth rate of 9.6%.
Price & Consensus: SEE
UFP Technologies: The company recently completed the acquisition of Contech Medical, which is a strategic fit and will help it expand its medical customer base. The buyout will be immediately accretive to earnings. The company remains committed to continue expanding its medical business given its excellent growth potential and high barriers to entry. UFP Technologies has been witnessing growth in its top-line performance in the past few quarters courtesy of improved demand in its end markets, which was instrumental in driving a rally of 51% in its share price over the past year.
The Zacks Consensus Estimate for UFP Technologies’ fiscal 2021 earnings has moved north by 5% in the past 90 days. The Newburyport, MA based company has a trailing four-quarter earnings surprise of 22.9%, on average. The company currently has a Zacks Rank #3.
Price & Consensus: UFPT