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Reasons to Add Packaging Corp (PKG) Stock to Your Portfolio Now

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Packaging Corporation of America (PKG - Free Report) has been benefiting from solid demand in its packaging segment backed by e-commerce and higher requirements for meat, fruit and vegetables, processed food, beverages, medicine and other consumer products. Its focus on acquisitions to expand containerboard and corrugated products portfolio and price-hike actions are likely to favor results.

Packaging Corp currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold), offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Upbeat Outlook: Packaging Corp projects earnings per share (EPS) to be around $2.50 in first-quarter 2022. The guidance indicates year-over-year growth of 41%. Its Packaging segment will benefit from higher corrugated products shipments with three additional shipping days. Shipments per day are expected to be higher on a year-over-year basis, owing to strong demand and higher domestic and export prices and mix. For the Paper segment, the company expects higher prices and mix from its previously announced price increase that was executed last November.

Strong Financial Position: Packaging Corp ended 2021 with $754 million cash in hand, including marketable securities. It completed the debt refinancing in October 2021, which extended the company’s overall debt maturity from 8.5 years to 16.3 years and lowered its overall interest rate from 3.9% to 3.5%. Gross was $2.5 billion at 2021-end. The company maintains a balanced approach toward capital allocation in order to boost growth and maximize returns for shareholders.

During the fourth quarter of 2021, the company utilized the remaining $193 million of share repurchase authorization to buy back over 1.4 million shares. The company’s board of directors recently approved a new $1 billion repurchase authorization.

Positive Growth Expectations: The Zacks Consensus Estimate for the company’s current-year EPS is currently pegged at $10.57, indicating year-over-year growth of 12.6%. The same for 2023 stands at $11.13, suggesting a year-over-year improvement of 5.2%.

Positive Earnings Surprise History: Packaging Corp has a trailing four-quarter earnings surprise of 22.8%, on average.

Superior Return on Assets: Packaging Corp currently has a Return on Assets (“ROA”) of 11.3%, higher than the industry’s 5.2%. An above-average ROA indicates that the company is generating earnings by effectively managing assets.

Growth Drivers in Place

Demand in the Packaging segment, which accounts for 91% of the company’s revenues, continues to be strong. Packaging products are essential for the distribution of food, beverage and pharmaceutical products. Hence, the Packaging segment continues to benefit from the elevated demand for meat, fruit and vegetables, processed food, beverages, medicine and other consumer products due to the coronavirus crisis.

Demand for containerboard and corrugated products remains strong across most of the company’s end markets. The company’s corrugated products plants set record fourth-quarter total shipments and all-time record shipments on a daily basis. This momentum is anticipated to continue in 2022 as well. Apart from this, Packaging Corp will continue to benefit from the e-commerce boom that has led to an increase in demand for boxes.

Recently, Packaging Corp acquired all of the assets of Advanced Packaging Corporation in a cash-free transaction. Per the agreement, the company will acquire a full-line 500,000-square-foot corrugated products facility located in Grand Rapids, MI. The deal supports Packaging Corp’s focus on enhancing its containerboard portfolio through organic box volume growth and strategic box plant acquisitions. The company’s containerboard integration is anticipated to increase by almost 80,000 tons. This will boost mill capacity and box plant operations. The deal is expected to be immediately accretive to earnings.

Price Performance

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Packaging Corp’s stock has gained 15.7% in the past year compared with the industry’s growth of 5.8%.

Stocks to Consider

Some other top-ranked stocks in the Industrial Products sector are Titan International (TWI - Free Report) , AGCO Corporation (AGCO - Free Report) and Deere & Company (DE - Free Report) . While TWI flaunts a Zacks Rank #1, AGCO and DE carry a Zacks Rank #2 at present.

Titan International has an expected earnings growth rate of 36.5% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 51% in the past 60 days.

PKG pulled off a trailing four-quarter earnings surprise of 47.6%, on average. TWI’s shares have gained 14% in the past six months.

AGCO Corp has an estimated earnings growth rate of 12.1% for 2022. In the past 60 days, the Zacks Consensus Estimate for the year’s earnings has been revised upward by 11%.

AGCO has a trailing four-quarter earnings surprise of 56.6%, on average. In the past year, the company’s shares have increased 5%.

Deere has a projected earnings growth rate of 19.7% for the current fiscal. The Zacks Consensus Estimate for fiscal 2022 earnings has moved north by 2.3% in the past 60 days.

Deere has a trailing four-quarter earnings surprise of 20.6%, on average. DE’s shares have climbed 11.7% in the past year.