We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Stocks to Watch in a Promising Paper and Related Products Industry
Read MoreHide Full Article
The Zacks Paper and Related Products industry is poised to gain from the surge in packaging requirements due to rising e-commerce activities. Apart from this, the steady demand from consumer-oriented end-markets, such as food and beverages, and healthcare, will keep supporting the industry. The growing need for sustainable and eco-friendly packaging options due to increasing environmental concerns will also act as a key catalyst for the paper industry.
International Paper Company (IP - Free Report) , Veritiv Corporation and Clearwater Paper Corporation (CLW - Free Report) are likely to gain from the above-mentioned trends.
Industry Description
The Zacks Paper and Related Products industry comprises companies that manufacture and sell paper and paper products. The industry is highly diversified in terms of products, ranging from graphic paper and packaging paper to absorbent hygiene products. Graphic papers, which include printing and writing papers, and newsprint, are utilized for communication purposes. The industry provides packaging solutions for liquid, food, pharmaceutical, beauty, household, commercial and industrial products. It also produces fluff and specialty pulps that is utilized in absorbent hygiene products, tissues and paper products. The industry caters to a wide array of industries, including food and beverage, farming, home and personal care, health, retail, e-commerce and transport. The industry players meet customers’ shipping, storage and display requirements with sustainable solutions.
Major Trends Shaping the Future of Paper and Related Products Industry
E-commerce & Consumer Products to Support Packaging Demand: The industry’s considerable exposure to consumer-oriented end markets, including food and beverages, and healthcare, ensures steady growth and earnings. With the evolution of e-commerce, packaging has gained utmost importance as it has to maintain the integrity of the product and be durable to withstand the complexity involved in delivering the product. Per Statista, revenues in the e-commerce market are projected to grow 50% over the next four years to 7.4 trillion dollars by 2025, representing a major growth opportunity for the industry.
Sustainability is the Key: Increasing demand for sustainable packaging options and eco-friendly packaging solutions will support the paper market in the days ahead. The paper industry has already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods. Investment in breakthrough technologies will propel the demand for high-quality paper products.
Pricing Actions, Improving Efficiency to Offset Cost Inflation: The industry is witnessing rising transportation, chemical and fuel costs, and supply-chain headwinds. Therefore, the industry players are increasingly focusing on pricing actions, cost reduction and resorting to automation in manufacturing to boost productivity and increase efficiency.
Digitization is Hurting Paper Demand: The transition to digital media has been eroding the graphic-paper market for some time now. The same remains a persistent threat to the industry. Paperless communication, increased use of email, less print advertising, more electronic billing and fewer catalogs have dented the graphic-paper demand. Consequently, the industry is resorting to machine conversions into packaging and specialty papers. Paper consumption in schools, offices and businesses has been affected due to the shutdowns led by the pandemic. The demand has, however, picked up on the reopening of schools and offices.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Paper and Related Products industry is a 12-stock group within the broader Basic Materials sector. The industry currently carries a Zacks Industry Rank #35, which places it at the top 14% of the 252 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Over the past three months, the industry’s earnings estimates for the current year have been revised upward by 47%.
Before we present a few Paper and Related Products stocks that investors can keep an eye on, it is worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Versus S&P 500 & Sector
The Paper and Related Products industry has underperformed the S&P 500 as well as the sector over the past year. The stocks in this industry have fallen 21.9%, while the Basic Materials sector has lost 14.3%. The S&P 500 composite has declined 12.5% during this time frame.
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 Paper and Related Products companies, we see that the industry is currently trading at 3.99X compared with the S&P 500’s 11.66X and the Basic Material sector’s forward 12-month EV/EBITDA of 4.32X. 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 10.86X and as low as 3.96X, with the median being 8.49X.
3 Paper and Related Products Stocks to Keep an Eye on
Veritiv: Robust packaging sales growth and operational efficiencies across the business continue to benefit the company’s bottom-line performance. Last month, it reported record first-quarter 2022 earnings per share of $5.12, reflecting a 300% surge from the year-ago period. The upside was driven by double-digit sales growth and year-over-year adjusted EBITDA margin improvements across each of its segments. It also delivered the ninth consecutive quarter of a year-over-year improvement in adjusted EBITDA on operational improvements. This was instrumental in the stock’s gain of 10% over the last three months. It recently completed the Veritiv Canada, Inc. business sale to Imperial Dade. VRTV can now focus on its strategy to invest in high-growth, higher-margin businesses and geographies, and capitalize on its industry-leading Packaging and Facility Solutions capabilities.
Atlanta, GA-based Veritiv’s earnings estimates for fiscal 2022 have moved 25% north in 60 days. The consensus estimate indicates year-over-year growth of 104%. The company has a trailing four-quarter earnings surprise of 60.7%, on average. VRTV currently carries a Zacks Rank #2 (Buy).
Clearwater Paper: In paperboard, the company continues to gain on strong demand and higher pricing levels. Its tissue volumes have stabilized and pricing has improved. The Pulp and Paperboard business will gain from the growing sustainable packaging trends. The company’s commitment to reducing debt levels and a prudent capital structure provide ample liquidity. Also, its continued focus on operational execution will drive margins. The CLW stock has appreciated 11% over the past three months.
The Zacks Consensus Estimate for 2022 earnings indicates year-over-year growth of 249.5%. The consensus estimate has moved up 18% over the past 60 days. Spokane, WA-based CLW has a trailing four-quarter earnings surprise of 37.8%, on average. The company currently carries a Zacks Rank #2.
Price and Consensus: CLW
International Paper: The company’s Industrial Packaging segment continues to witness a solid demand for corrugated and containerboard packaging. Meanwhile, the Global cellulose fibers segment is riding on strong demand for fluff pulp. Backed by the above-mentioned trends, the company’s share price has increased 1% over the past three months. Benefits from price realization across the company’s segments and expected contribution stemming from Building a Better IP initiatives are expected to boost its earnings. Its efforts to reduce debt levels appear encouraging. The company is planning to increase funding for cost-reduction projects, with expected returns in excess of 25%. It continues to assess disciplined and selective M&A opportunities, particularly in the packaging businesses in North America and Europe. Mergers and acquisitions are key strategies for International Paper to strengthen its packaging business.
The Zacks Consensus Estimate for ongoing-year earnings for International Paper has moved up 6.5% over the past 60 days. The consensus estimate indicates year-over-year growth of 48.7%. The Memphis, TN-based company has a trailing four-quarter earnings surprise of 7.3%, on average. IP currently carries a Zacks Rank #3 (Hold).
Price and Consensus: IP
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
3 Stocks to Watch in a Promising Paper and Related Products Industry
The Zacks Paper and Related Products industry is poised to gain from the surge in packaging requirements due to rising e-commerce activities. Apart from this, the steady demand from consumer-oriented end-markets, such as food and beverages, and healthcare, will keep supporting the industry. The growing need for sustainable and eco-friendly packaging options due to increasing environmental concerns will also act as a key catalyst for the paper industry.
International Paper Company (IP - Free Report) , Veritiv Corporation and Clearwater Paper Corporation (CLW - Free Report) are likely to gain from the above-mentioned trends.
Industry Description
The Zacks Paper and Related Products industry comprises companies that manufacture and sell paper and paper products. The industry is highly diversified in terms of products, ranging from graphic paper and packaging paper to absorbent hygiene products. Graphic papers, which include printing and writing papers, and newsprint, are utilized for communication purposes. The industry provides packaging solutions for liquid, food, pharmaceutical, beauty, household, commercial and industrial products. It also produces fluff and specialty pulps that is utilized in absorbent hygiene products, tissues and paper products. The industry caters to a wide array of industries, including food and beverage, farming, home and personal care, health, retail, e-commerce and transport. The industry players meet customers’ shipping, storage and display requirements with sustainable solutions.
Major Trends Shaping the Future of Paper and Related Products Industry
E-commerce & Consumer Products to Support Packaging Demand: The industry’s considerable exposure to consumer-oriented end markets, including food and beverages, and healthcare, ensures steady growth and earnings. With the evolution of e-commerce, packaging has gained utmost importance as it has to maintain the integrity of the product and be durable to withstand the complexity involved in delivering the product. Per Statista, revenues in the e-commerce market are projected to grow 50% over the next four years to 7.4 trillion dollars by 2025, representing a major growth opportunity for the industry.
Sustainability is the Key: Increasing demand for sustainable packaging options and eco-friendly packaging solutions will support the paper market in the days ahead. The paper industry has already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods. Investment in breakthrough technologies will propel the demand for high-quality paper products.
Pricing Actions, Improving Efficiency to Offset Cost Inflation: The industry is witnessing rising transportation, chemical and fuel costs, and supply-chain headwinds. Therefore, the industry players are increasingly focusing on pricing actions, cost reduction and resorting to automation in manufacturing to boost productivity and increase efficiency.
Digitization is Hurting Paper Demand: The transition to digital media has been eroding the graphic-paper market for some time now. The same remains a persistent threat to the industry. Paperless communication, increased use of email, less print advertising, more electronic billing and fewer catalogs have dented the graphic-paper demand. Consequently, the industry is resorting to machine conversions into packaging and specialty papers. Paper consumption in schools, offices and businesses has been affected due to the shutdowns led by the pandemic. The demand has, however, picked up on the reopening of schools and offices.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Paper and Related Products industry is a 12-stock group within the broader Basic Materials sector. The industry currently carries a Zacks Industry Rank #35, which places it at the top 14% of the 252 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Over the past three months, the industry’s earnings estimates for the current year have been revised upward by 47%.
Before we present a few Paper and Related Products stocks that investors can keep an eye on, it is worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Versus S&P 500 & Sector
The Paper and Related Products industry has underperformed the S&P 500 as well as the sector over the past year. The stocks in this industry have fallen 21.9%, while the Basic Materials sector has lost 14.3%. The S&P 500 composite has declined 12.5% during this time frame.
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 Paper and Related Products companies, we see that the industry is currently trading at 3.99X compared with the S&P 500’s 11.66X and the Basic Material sector’s forward 12-month EV/EBITDA of 4.32X. 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 10.86X and as low as 3.96X, with the median being 8.49X.
3 Paper and Related Products Stocks to Keep an Eye on
Veritiv: Robust packaging sales growth and operational efficiencies across the business continue to benefit the company’s bottom-line performance. Last month, it reported record first-quarter 2022 earnings per share of $5.12, reflecting a 300% surge from the year-ago period. The upside was driven by double-digit sales growth and year-over-year adjusted EBITDA margin improvements across each of its segments. It also delivered the ninth consecutive quarter of a year-over-year improvement in adjusted EBITDA on operational improvements. This was instrumental in the stock’s gain of 10% over the last three months. It recently completed the Veritiv Canada, Inc. business sale to Imperial Dade. VRTV can now focus on its strategy to invest in high-growth, higher-margin businesses and geographies, and capitalize on its industry-leading Packaging and Facility Solutions capabilities.
Atlanta, GA-based Veritiv’s earnings estimates for fiscal 2022 have moved 25% north in 60 days. The consensus estimate indicates year-over-year growth of 104%. The company has a trailing four-quarter earnings surprise of 60.7%, on average. VRTV currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: VRTV
Clearwater Paper: In paperboard, the company continues to gain on strong demand and higher pricing levels. Its tissue volumes have stabilized and pricing has improved. The Pulp and Paperboard business will gain from the growing sustainable packaging trends. The company’s commitment to reducing debt levels and a prudent capital structure provide ample liquidity. Also, its continued focus on operational execution will drive margins. The CLW stock has appreciated 11% over the past three months.
The Zacks Consensus Estimate for 2022 earnings indicates year-over-year growth of 249.5%. The consensus estimate has moved up 18% over the past 60 days. Spokane, WA-based CLW has a trailing four-quarter earnings surprise of 37.8%, on average. The company currently carries a Zacks Rank #2.
Price and Consensus: CLW
International Paper: The company’s Industrial Packaging segment continues to witness a solid demand for corrugated and containerboard packaging. Meanwhile, the Global cellulose fibers segment is riding on strong demand for fluff pulp. Backed by the above-mentioned trends, the company’s share price has increased 1% over the past three months. Benefits from price realization across the company’s segments and expected contribution stemming from Building a Better IP initiatives are expected to boost its earnings. Its efforts to reduce debt levels appear encouraging. The company is planning to increase funding for cost-reduction projects, with expected returns in excess of 25%. It continues to assess disciplined and selective M&A opportunities, particularly in the packaging businesses in North America and Europe. Mergers and acquisitions are key strategies for International Paper to strengthen its packaging business.
The Zacks Consensus Estimate for ongoing-year earnings for International Paper has moved up 6.5% over the past 60 days. The consensus estimate indicates year-over-year growth of 48.7%. The Memphis, TN-based company has a trailing four-quarter earnings surprise of 7.3%, on average. IP currently carries a Zacks Rank #3 (Hold).
Price and Consensus: IP