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The Zacks Containers – Paper and Packaging industry will continue to benefit from solid demand from consumer-oriented end-markets, as packaging is integral to product distribution. Booming e-commerce activities, and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will favor the industry. Pricing actions implemented by the industry players will help offset the impacts of the ongoing supply-chain disruptions and rising costs.
Packaging Corporation of America, AptarGroup, Graphic Packaging Holding Co. and Sonoco Products Co. are set to gain from these trends.
Industry Description
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. The packaging solutions provided by the industry help protect and preserve products, extend the shelf life, and cut down on wastage and loss across the wide and lengthy range of distribution channels. The products range from containerboard and corrugated packaging to flexible and rigid plastic packaging. Some companies 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, such as beauty, personal care and home care. They also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets, to name a few.
What's Shaping the Future of the Containers - Paper and Packaging Industry
E-commerce Remains a Key Catalyst: With rising e-commerce activities over the past few years and the pandemic accelerating it further, the importance of packaging increased manifold as it maintains the integrity and durability of a product. Packaging also helps withstand the complex product delivery process. Per Statista, revenues in global retail e-commerce are expected to grow, seeing a CAGR of 11.5% to $6.35 trillion by 2027.
In 2021, e-commerce accounted for nearly 19% of global retail sales. By 2026, the online segment is anticipated to be around 25% of the total global retail sales. This, in turn, will fuel the Containers - Paper and Packaging industry. The industry has significant exposure (more than 60%) to consumer-oriented end markets, such as food and beverages and healthcare, keeping demand for packaging applications fairly stable across economic cycles.
Demand for Eco-Friendly Packaging to Aid Industry: Demand for environmentally-friendly biodegradable packaging materials is witnessing a steady rise globally, courtesy of customers’ increasing awareness of environmental issues. The industry is constantly striving to meet the same by adopting new technology and bringing innovative products.
Industry players already began incorporating recycled content into production methods. By maximizing recycling, the industry can implement environmentally and economically sustainable production methods.
High Costs & Supply-Chain Woes Remain Concerning: The industry participants continue encountering supply-chain disruptions and higher raw material costs, stemming from various factors like general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions. Higher labor, transportation and chemical costs aggravated their woes.
The shortage of labor impacted their production levels and impaired their ability to meet high demand. The companies have been implementing cost-reduction actions for a while, which are likely to sustain margins. They focus on streamlining their operations and realigning with high-growth key markets to bolster their performances. Some companies recently witnessed a decline in volumes due to lower consumer spending on goods, given the inflationary scenario.
Industry Rank
The Zacks Containers - Paper and Packaging industry is a 10-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #40, which places it at the top 16% of the 251 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 is worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Containers - Paper and Packaging industry has outperformed the S&P 500 but lagged the sector over the past year. The industry has fallen 3.7% compared with the S&P 500’s decrease of 4.4%. The Industrial Products sector has meanwhile declined 1.0%.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Containers - Paper and Packaging companies, we see that the industry is currently trading at 17.60X compared with the S&P 500’s 11.00X and the Industrial Products sector’s trailing 12-month EV/EBITDA of 14.52X.
Over the last five years, the industry traded as high as 30.07X and as low as 10.95X, with the median at 18.35X.
4 Containers - Paper and Packaging Stocks to Keep an Eye on
AptarGroup: The company’s Beauty segment will continue to gain from increased demand for beauty and personal care markets. The Pharma segment is witnessing steady demand growth for prescription and consumer healthcare. Given the ongoing sales momentum in elastomer components and active material solutions, AptarGroup is expanding its capacity to produce elastomer components for injected medicines and active material science solutions, which will drive near-term growth.
The company has embarked on a business-transformation plan that will drive top-line growth, boost operational excellence, enhance its approach to innovation, and improve organizational effectiveness. Backed by its efforts to bring new products into the market, the company remains the preferred choice for renowned brands worldwide. Focus on acquisitions to expand the scope of technologies, geographic presence and product offerings will also aid growth. Shares of ATR have gained 7.6% over the past three months.
The Zacks Consensus Estimate for AptarGroup’s fiscal 2023 earnings has moved 3.5% north in the past 90 days. The figure indicates year-over-year growth of 1.8%. This Crystal Lake, IL-based company has a trailing four-quarter earnings surprise of 5%, on average. The stock estimated a long-term growth rate of 7% and has a Zacks Rank #2 (Buy) at present.
Sonoco: The company’s consumer packaging businesses are primarily benefiting from the Metal Packaging acquisition. SON is implementing aggressive price actions across its businesses to counter higher raw material and non-material inflation. This, combined with its focus on optimizing businesses through productivity improvement, standardization and cost control, will drive Sonoco’s results in the near term. SON is focused on increasing investment in its core consumer and industrial businesses, and achieving an annual EBITDA of $1 billion by 2026. The company’s shares have appreciated 1.7% over the past three months.
The Zacks Consensus Estimate for Sonoco’s fiscal 2023 earnings has moved north by 0.3% in the past 90 days. The Hartsville, SC-based company has a trailing four-quarter earnings surprise of 6.1%, on average. The company currently has a Zacks Rank #2 and an estimated long-term growth of 5%.
Graphic Packaging: GPK has been capturing business opportunities, supported by consumer preference for sustainable, fiber-based packaging solutions. Innovation and more circular consumer-packaging solutions are consistently driving its organic sales growth. GEF’s shares have appreciated 4.2% over the past three months.
The company is partnering with new and existing customers globally to fulfill their demand to package consumer goods in recyclable, fiber-based solutions. GPK is well-poised to meet this increased demand for recycled content in paperboard packaging, as its state-of-the-art coated recycled board machine in Kalamazoo, MI, continues to ramp-up production.
The machine is expected to significantly improve water and energy use, and enable GPK to be the lowest-cost producer of a high-quality coated recycled board in North America. It is expected to contribute $130 million to incremental EBITDA over three years. Graphic Packaging has been executing price actions for a while, thus aiding in offsetting commodity input cost inflation.
The Zacks Consensus Estimate for this Atlanta, GA-based player’s fiscal 2023 earnings has moved up 8.3% over the past 90 days. The figure indicates year-over-year growth of 18%. The company has a trailing four-quarter earnings surprise of 14.2%, on average. GPK has an estimated long-term earnings growth rate of 25% and a Zacks Rank #3 (Hold) at present.
Packaging Corp: The company’s packaging business, which accounts for around 91% of its revenues, has been benefiting from strong demand in e-commerce and stable demand for the packaging of meat, fruit and vegetables, processed food, beverages, and medicines. Both containerboard and corrugated products’ demand is strong across most of the company’s end markets. PKG shares have gained 10.9% in the past three months.
The company maintains a balanced approach toward capital allocation to boost growth and maximize returns for shareholders. The conversion of the No. 3 paper machine at its Jackson, AL-based mill to linerboard in a phased manner over the next three years will help it meet the strong packaging demand.
The Zacks Consensus Estimate for Packaging Corp’s ongoing year’s earnings has been revised upward by 1.4% in the past 90 days. PKG has a trailing four-quarter earnings surprise of 6.2%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 5%. The company currently carries a Zacks Rank #3.
Why Haven’t You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Packaging Corporation of America, AptarGroup, Graphic Packaging and Sonoco
For Immediate Release
Chicago, IL – April 25, 2023 – Today, Zacks Equity Research discusses Packaging Corporation of America (PKG - Free Report) , AptarGroup (ATR - Free Report) , Graphic Packaging Holding Co. (GPK - Free Report) and Sonoco Products Co. (SON - Free Report) .
Industry: Paper & Packaging
Link: https://www.zacks.com/commentary/2083252/4-stocks-to-watch-in-the-promising-packaging-industry
The Zacks Containers – Paper and Packaging industry will continue to benefit from solid demand from consumer-oriented end-markets, as packaging is integral to product distribution. Booming e-commerce activities, and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will favor the industry. Pricing actions implemented by the industry players will help offset the impacts of the ongoing supply-chain disruptions and rising costs.
Packaging Corporation of America, AptarGroup, Graphic Packaging Holding Co. and Sonoco Products Co. are set to gain from these trends.
Industry Description
The Zacks Containers – Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. The packaging solutions provided by the industry help protect and preserve products, extend the shelf life, and cut down on wastage and loss across the wide and lengthy range of distribution channels. The products range from containerboard and corrugated packaging to flexible and rigid plastic packaging. Some companies 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, such as beauty, personal care and home care. They also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets, to name a few.
What's Shaping the Future of the Containers - Paper and Packaging Industry
E-commerce Remains a Key Catalyst: With rising e-commerce activities over the past few years and the pandemic accelerating it further, the importance of packaging increased manifold as it maintains the integrity and durability of a product. Packaging also helps withstand the complex product delivery process. Per Statista, revenues in global retail e-commerce are expected to grow, seeing a CAGR of 11.5% to $6.35 trillion by 2027.
In 2021, e-commerce accounted for nearly 19% of global retail sales. By 2026, the online segment is anticipated to be around 25% of the total global retail sales. This, in turn, will fuel the Containers - Paper and Packaging industry. The industry has significant exposure (more than 60%) to consumer-oriented end markets, such as food and beverages and healthcare, keeping demand for packaging applications fairly stable across economic cycles.
Demand for Eco-Friendly Packaging to Aid Industry: Demand for environmentally-friendly biodegradable packaging materials is witnessing a steady rise globally, courtesy of customers’ increasing awareness of environmental issues. The industry is constantly striving to meet the same by adopting new technology and bringing innovative products.
Industry players already began incorporating recycled content into production methods. By maximizing recycling, the industry can implement environmentally and economically sustainable production methods.
High Costs & Supply-Chain Woes Remain Concerning: The industry participants continue encountering supply-chain disruptions and higher raw material costs, stemming from various factors like general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions. Higher labor, transportation and chemical costs aggravated their woes.
The shortage of labor impacted their production levels and impaired their ability to meet high demand. The companies have been implementing cost-reduction actions for a while, which are likely to sustain margins. They focus on streamlining their operations and realigning with high-growth key markets to bolster their performances. Some companies recently witnessed a decline in volumes due to lower consumer spending on goods, given the inflationary scenario.
Industry Rank
The Zacks Containers - Paper and Packaging industry is a 10-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #40, which places it at the top 16% of the 251 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 is worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Containers - Paper and Packaging industry has outperformed the S&P 500 but lagged the sector over the past year. The industry has fallen 3.7% compared with the S&P 500’s decrease of 4.4%. The Industrial Products sector has meanwhile declined 1.0%.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Containers - Paper and Packaging companies, we see that the industry is currently trading at 17.60X compared with the S&P 500’s 11.00X and the Industrial Products sector’s trailing 12-month EV/EBITDA of 14.52X.
Over the last five years, the industry traded as high as 30.07X and as low as 10.95X, with the median at 18.35X.
4 Containers - Paper and Packaging Stocks to Keep an Eye on
AptarGroup: The company’s Beauty segment will continue to gain from increased demand for beauty and personal care markets. The Pharma segment is witnessing steady demand growth for prescription and consumer healthcare. Given the ongoing sales momentum in elastomer components and active material solutions, AptarGroup is expanding its capacity to produce elastomer components for injected medicines and active material science solutions, which will drive near-term growth.
The company has embarked on a business-transformation plan that will drive top-line growth, boost operational excellence, enhance its approach to innovation, and improve organizational effectiveness. Backed by its efforts to bring new products into the market, the company remains the preferred choice for renowned brands worldwide. Focus on acquisitions to expand the scope of technologies, geographic presence and product offerings will also aid growth. Shares of ATR have gained 7.6% over the past three months.
The Zacks Consensus Estimate for AptarGroup’s fiscal 2023 earnings has moved 3.5% north in the past 90 days. The figure indicates year-over-year growth of 1.8%. This Crystal Lake, IL-based company has a trailing four-quarter earnings surprise of 5%, on average. The stock estimated a long-term growth rate of 7% and has a Zacks Rank #2 (Buy) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sonoco: The company’s consumer packaging businesses are primarily benefiting from the Metal Packaging acquisition. SON is implementing aggressive price actions across its businesses to counter higher raw material and non-material inflation. This, combined with its focus on optimizing businesses through productivity improvement, standardization and cost control, will drive Sonoco’s results in the near term. SON is focused on increasing investment in its core consumer and industrial businesses, and achieving an annual EBITDA of $1 billion by 2026. The company’s shares have appreciated 1.7% over the past three months.
The Zacks Consensus Estimate for Sonoco’s fiscal 2023 earnings has moved north by 0.3% in the past 90 days. The Hartsville, SC-based company has a trailing four-quarter earnings surprise of 6.1%, on average. The company currently has a Zacks Rank #2 and an estimated long-term growth of 5%.
Graphic Packaging: GPK has been capturing business opportunities, supported by consumer preference for sustainable, fiber-based packaging solutions. Innovation and more circular consumer-packaging solutions are consistently driving its organic sales growth. GEF’s shares have appreciated 4.2% over the past three months.
The company is partnering with new and existing customers globally to fulfill their demand to package consumer goods in recyclable, fiber-based solutions. GPK is well-poised to meet this increased demand for recycled content in paperboard packaging, as its state-of-the-art coated recycled board machine in Kalamazoo, MI, continues to ramp-up production.
The machine is expected to significantly improve water and energy use, and enable GPK to be the lowest-cost producer of a high-quality coated recycled board in North America. It is expected to contribute $130 million to incremental EBITDA over three years. Graphic Packaging has been executing price actions for a while, thus aiding in offsetting commodity input cost inflation.
The Zacks Consensus Estimate for this Atlanta, GA-based player’s fiscal 2023 earnings has moved up 8.3% over the past 90 days. The figure indicates year-over-year growth of 18%. The company has a trailing four-quarter earnings surprise of 14.2%, on average. GPK has an estimated long-term earnings growth rate of 25% and a Zacks Rank #3 (Hold) at present.
Packaging Corp: The company’s packaging business, which accounts for around 91% of its revenues, has been benefiting from strong demand in e-commerce and stable demand for the packaging of meat, fruit and vegetables, processed food, beverages, and medicines. Both containerboard and corrugated products’ demand is strong across most of the company’s end markets. PKG shares have gained 10.9% in the past three months.
The company maintains a balanced approach toward capital allocation to boost growth and maximize returns for shareholders. The conversion of the No. 3 paper machine at its Jackson, AL-based mill to linerboard in a phased manner over the next three years will help it meet the strong packaging demand.
The Zacks Consensus Estimate for Packaging Corp’s ongoing year’s earnings has been revised upward by 1.4% in the past 90 days. PKG has a trailing four-quarter earnings surprise of 6.2%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 5%. The company currently carries a Zacks Rank #3.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.