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Packaging Corporation Hits 52-Week High on Holistic Growth

PKG AOS AIT MIDD

Trades from $3

Shares of packaging products manufacturer Packaging Corporation of America (PKG - Free Report) scaled a new 52-week high of $87.38 on Nov 16, before closing the trading at $85.72 for a healthy year-to-date return of 36.0%. Barring minor hiccups, Packaging Corporation’s share price has been on an uptrend since late February.

Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock has the fundamentals to scale higher. The stock is currently trading at a forward P/E of 17.8x and has long-term earnings growth expectation of 11.5%.

Growth Drivers

Packaging Corporation is the fourth largest containerboard and corrugated products manufacturer in the U.S. Its offerings include a diversified range of corrugated products such as shipping containers, point-of-sale graphics packaging, point-of-purchase displays and other specialized packaging. An enormous scale of production and an extended product portfolio offer a competitive advantage to the company to fulfill the varied demands of its diversified clientele.

The company’s corrugated product manufacturing plants produce a wide variety of packaging items, including conventional shipping containers used to protect and transport manufactured goods, multi-colored boxes, and displays with strong visual appeal that aid merchandise the packaged product across retail locations. In addition, Packaging Corporation is a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. The diverse product portfolio mitigates operational risks associated with any downturn in a particular product category.

PACKAGING CORP Price and Consensus

 

PACKAGING CORP Price and Consensus | PACKAGING CORP Quote

Last month, Packaging Corporation entered into a definitive agreement to acquire Columbus Container, Inc., an independent corrugated products manufacturer, for $100 million. The deal is likely to close in the fourth quarter of 2016.

Per the deal, Packaging Corporation will acquire the full-line corrugated products business located in Columbus, IN, along with five warehousing facilities and other connected units located in Indiana and Illinois. The acquisition is expected to increase containerboard production by over 30,000 tons. The transaction is expected to be immediately accretive to earnings.

In August, Packaging Corporation made a similar deal with the purchase of all of the assets of TimBar Corporation, a large independent corrugated products manufacturer, for $386 million in cash. These strategic acquisitions show that the company is focused on increasing its vertical integration of containerboard to above 90%.The company expects both the strategic acquisitions to increase its containerboard integration and allow further optimization and enhancement of its mill capacity.

All these measures toward achieving healthy growth in the near future probably raised investor confidence and drove the shares to a new 52-week high.

Stocks to Consider

Better-ranked stocks in the industry include AO Smith Corp. (AOS - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Middleby Corp. (MIDD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AO Smith is currently trading at a forward P/E of 25.9x and has beaten estimates in each of the trailing four quarters, the average surprise being 5.9%.

Applied Industrial has a long-term earnings growth expectation of 12% and is currently trading at a forward P/E of 21.9x.

Middleby has a long-term earnings growth expectation of 22% and is currently trading at a forward P/E of 26.8x.

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