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Packaging Corp (PKG) Hits 52-Week High: What's Driving It?

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Shares of Packaging Corporation of America (PKG - Free Report) scaled a fresh 52-week high of $135.01 during trading session on Nov 16, before retracting a bit to close at $134.36. Forecast-topping third-quarter 2020 results, pandemic-driven solid packaging demand for essential products and the e-commerce boom have contributed to this rally.

The company has a market cap of $12.3 billion. It has an expected long-term earnings per share growth rate of 5%.

The stock has appreciated 43.4% over the past six months compared with the industry’s growth of 26.9%.

Q3 Earnings & Sales Top Estimates

The company reported adjusted earnings per share of $1.57 for the September-end quarter, surpassing the Zacks Consensus Estimate of $1.36. Revenues of $1,694 million also beat the consensus mark of $1,657 million.

Driving Factors

Packaging products are essential for the distribution of food, beverage and pharmaceutical products. Hence, the packaging segment, which contributes around 85% of the company’s revenues, will keep benefiting from the elevated demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products amid the coronavirus pandemic. Further, Packaging Corporation will benefit from the e-commerce boom that will spur demand for boxes.

The company discontinued the production of uncoated free sheet and coated one-side grades at the Wallula, WA mill, and converted the No. 3 machine into a virgin kraft linerboard machine with an annual capacity of 400,000 tons. The conversion resulted in the production of lighter-weight high-performance linerboard grades, which will assist it in optimizing the entire containerboard system platform, and reduce logistics and freight costs. This move will help boost its profitability and margins in the paper segment. In addition, as the demand for paper products improved, the company re-started the Jackson Mill in Jackson, AL on Oct 6, which was temporarily shut down since May due to softer paper demand. Packaging Corporation will continue to evaluate the demand for paper products throughout the current quarter.

Over the past five years, Packaging Corporation’s debt has witnessed a CAGR of 2%, while its cash flow has seen a CAGR of 44%. It ended the third quarter with $949 million of cash on hand or $1.1 billion, including the cash recently moved to marketable securities. The company’s liquidity as of Sep 30, 2020 was more than $1.4 billion. This positions the company well to sail through the turbulent times.

Positive Estimate Revisions

The Zacks Consensus Estimate for the company’s ongoing-year earnings has moved 9.6% north over the past 30 days and is currently pegged at $5.82 per share.

Zacks Rank & Other Stocks to Consider

Packaging Corporation currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the Industrial Products sector are Crown Holdings, Inc. (CCK - Free Report) , iRobot Corporation (IRBT - Free Report) and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While Crown Holdings and iRobot flaunt a Zacks Rank #1, SiteOne Landscape carries a Zacks Rank of 2, at present.

Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Over the past six months, the company’s shares have appreciated 56.2%.

iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. The company’s shares have gained 19.2% over the past six months.

SiteOne Landscape has an expected earnings growth rate of 28.6% for 2020. The stock has climbed 51.7% in six months’ time.

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