Back to top

Image: Shutterstock

5 Top Stocks From the Flourishing Paper Packaging Industry

Read MoreHide Full Article

The Zacks Containers – Paper and Packaging industry is benefiting from 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 gaining from the booming e-commerce activities on spike in online sales as customers prefer staying indoors owing to the pandemic. 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 ACM Research, Inc. (ACMR - Free Report) are likely to benefit from these trends.

Industry Description

The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and packaging products utilized in the 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, food services 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, surging demand for essential products, such as food, medicine, medical equipment and other critical products in response to the pandemic is spurring 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 triggered 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 9.58% over 2021-2025, 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-led 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 had already been reeling under the unfavorable impact of increased digitization. Though the food and beverage markets are rapidly growing across the globe, parts of these markets, including food services and restaurants, have been affected significantly by the pandemic. Closures of food outlets have thwarted demand for food-grade paper packaging products. The industry has also been battling 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 #88, which places it at the top 35% of the 253 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 Outperforms S&P 500, Lags Sector

The Containers - Paper and Packaging industry has outperformed the S&P 500, while trailing the sector over the past year. The stocks in this industry have gained 35.1% compared with the S&P 500’s rally of 31.3%. Meanwhile, the Industrial Products sector has appreciated 43.1%.

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 17.09x compared with the S&P 500’s 17.25x and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.02x. 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 29.85x and as low as 10.81x, with the median at 16.57x.

5 Containers - Paper and Packaging Stocks to Keep a Close Eye On

ACM Research: Based in the Silicon Valley, ACM Research is a leading supplier of advanced, innovative capital equipment for the global semiconductor industry. The company is focused on expanding its customer base, launching innovative products as well increasing its production capacity. It is poised to gain from Space Alternated Phase Shif (SAPS) technology, Ultra C Tahoe, and TEBO product offerings as well as contributions from semi-critical cleaning and electrochemical plating (ECP) products. Moreover, the company is progressing well on its plans to acquire land rights in the Lingang Region of Shanghai.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 12.3% over the past 60 days to $1.55. The company’s shares have gained 28.2% over the past six months. It has a trailing four-quarter average earnings surprise of 142.18%. The company currently flaunts a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Price & Consensus: ACMR

Sealed Air: 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 global health crisis.  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, the company is anticipated to benefit from acquisitions, cost reductions, driving operational excellence and new innovations.

The Zacks Consensus Estimate for the company’s 2021 earnings has been revised upward by 4% over the past 60 days to $3.38. The company’s shares have rallied 8.6% over the past six months. It has a trailing four-quarter average earnings surprise of 24.88% and currently carries a Zacks Rank #3 (Hold).

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. The company 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 1.4% north over the past 60 days to 72 cents. The stock has gained 4% over the past six months. The company currently carries a Zacks Rank of 3 and has a trailing four-quarter earnings surprise of 4.18%, 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, fueling demand for its corrugated products packaging. Further, it is poised to gain from the e-commerce boom.

The Zacks Consensus Estimate for the company’s ongoing-year earnings has been revised 1.3% upward in 60 days’ time to $6.77. The stock has gained 30.2% in the past six months. It currently carries a Zacks Rank of 3 and has a trailing four-quarter average earnings surprise of 10.48%.

Price & Consensus: PKG

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. The company will likely gain from the soaring demand across the healthcare, hygiene and grocery end-markets. Furthermore, 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 its near-term performance.

The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has moved 0.9% north in the past 60 days to $5.42. The stock has rallied 9.1% over the past six months. The company has a trailing four-quarter earnings surprise of 22.17%, on average.

Price & Consensus: BERY

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2021 today >>