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Is Packaging Corp. a Great Stock for Value Investors?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Packaging Corporation of America (PKG - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Packaging Corp. has a trailing twelve months PE ratio of 18.6, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.3. If we focus on the long-term PE trend, Packaging Corp.’s current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Containers - Paper and Packaging industry’s trailing twelve months PE ratio, which stands at 19.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Packaging Corp. has a forward PE ratio (price relative to this year’s earnings) of just 15.7, so it is fair to say that a slightly more value-oriented path may be ahead for Packaging Corp. stock in the near term too.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Packaging Corp.’s P/CF ratio of 10.5 is lower than the Zacks classified Computer Containers - Paper and Packaging industry average of 13.1, which indicates that the stock is significantly undervalued in this respect.
Broad Value Outlook
In aggregate, Packaging Corp. currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Packaging Corp. a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Packaging Corp. is just 1.21, a level that is far lower than the industry average of 2.20. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, PKG is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Packaging Corp. might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘D’. This gives PKG a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one estimate higher in the past sixty days compared to three lower, while the full year estimate has seen three up and three down in the same time period.
As a result, the current quarter consensus estimate has fallen by 5.3% in the past two months, while the full year estimate has gone lower by 1.8%. You can see the consensus estimate trend and recent price actionfor the stock in the chart below:
Packaging Corporation of America Price and Consensus
Notably, the stock has a long term expected earnings growth of 13% and sports a Zacks Rank #3 (Hold). These mixed expectations indicate that while the stock’s growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.
Bottom Line
Packaging Corp. is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 37% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Containers - Paper and Packaging industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Is Packaging Corp. a Great Stock for Value Investors?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Packaging Corporation of America (PKG - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Packaging Corp. has a trailing twelve months PE ratio of 18.6, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.3. If we focus on the long-term PE trend, Packaging Corp.’s current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Containers - Paper and Packaging industry’s trailing twelve months PE ratio, which stands at 19.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Packaging Corp. has a forward PE ratio (price relative to this year’s earnings) of just 15.7, so it is fair to say that a slightly more value-oriented path may be ahead for Packaging Corp. stock in the near term too.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Packaging Corp.’s P/CF ratio of 10.5 is lower than the Zacks classified Computer Containers - Paper and Packaging industry average of 13.1, which indicates that the stock is significantly undervalued in this respect.
Broad Value Outlook
In aggregate, Packaging Corp. currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Packaging Corp. a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Packaging Corp. is just 1.21, a level that is far lower than the industry average of 2.20. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, PKG is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Packaging Corp. might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘D’. This gives PKG a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one estimate higher in the past sixty days compared to three lower, while the full year estimate has seen three up and three down in the same time period.
As a result, the current quarter consensus estimate has fallen by 5.3% in the past two months, while the full year estimate has gone lower by 1.8%. You can see the consensus estimate trend and recent price actionfor the stock in the chart below:
Packaging Corporation of America Price and Consensus
Packaging Corporation of America Price and Consensus | Packaging Corporation of America Quote
Notably, the stock has a long term expected earnings growth of 13% and sports a Zacks Rank #3 (Hold). These mixed expectations indicate that while the stock’s growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.
Bottom Line
Packaging Corp. is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 37% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Containers - Paper and Packaging industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>