KapStone Paper and Packaging Corporation
) have been heading higher recently on upbeat prospects for the
containerboard sector. This Zacks #1 Rank (Strong Buy) hit its new
52-week high on October 17, and has seen its shares soar roughly
41% year-to-date. The containerboard maker stands to benefit from a
strong backlog, better pricing, favorable industry trends and
healthy synergies from an acquisition.
Acquisition Helps Q2 Revenue to Soar
KapStone will report third quarter results after the closing bell
on October 30. The Zacks Consensus Estimate is at 48 cents per
On August 1, KapStone reported second-quarter adjusted earnings of
41 cents per share, missing the Zacks Consensus Estimate of 45
Revenues cruised higher by 43% year over year to $306.3 million on
the back of the contributions from U.S. Corrugated, Inc. (USC),
which the company bought last year. KapStone logged record paper
production of 390,000 tons in the quarter.
The average selling price decreased $10 from the prior-year quarter
to $623 per ton, mainly due to lower export containerboard prices,
which have been recovering after declining significantly in March.
However, average selling prices increased $15 per ton sequentially
on product mix improvements and a recovery of export containerboard
KapStone has a strong balance sheet and healthy cash flows to
invest in growth opportunities. The company recently said that it
is investing $29 million in its North Charleston, South Carolina,
paper mill. The investment is expected to boost the production of
Ultra High Performance (UPL) lightweight linerboard. The company
also announced a price hike (of $50 per ton) in July, which is
expected to drive its third quarter results.
Earnings Momentum Rising
The Zacks Consensus Estimate for 2012 has moved upward by roughly
2% in the last 30 days to $1.62 per share, as 3 of 5 estimates
headed higher. This indicates an estimated annualized growth of
The Zacks Consensus Estimate for 2013 jumped nearly 14% in the same
timeframe to $2.15 on 5 upward revisions out of 6 total estimates.
This outlook suggests year-over-year growth of roughly 33%.
KapStone is currently trading at a modest premium on a P/E basis.
It is currently trading at a forward P/E of 14.20x, a roughly 0.8%
premium to the peer group average of 14.09x. Moreover, its trailing
twelve months P/E of 16.41x is a bit higher than the peer group
average of 15.99x. The valuation looks reasonable considering the
company's healthy earnings trajectory. KapStone has a 1-year ROE of
12.2%, higher than its peer group average of 9.9%, reflecting
efficient capital deployment.
Sound Technicals and Healthy Performance
Technical indicators show that KapStone has been trading above its
50-day moving average since July 2012 and its 200-day moving
average since August 2012. Following a golden crossover in
September 2012, the 50-day moving average is currently reading
higher than the 200-day moving average, signaling the bullish
On the performance front, KapStone has outperformed the S&P 500
over the past year and has delivered a year-to-date return of
roughly 46% versus 18% for the benchmark.
Founded in 2005, KapStone Paper and Packaging Corporation is a
leading producer of unbleached kraft paper and corrugated products.
It is the parent company of KapStone Kraft Paper Corporation and
KapStone Container Corporation, and operates three paper mills and
14 converting plants across the U.S. The company, which has a
market cap of roughly $1.1 billion, offers a range of products,
including containerboard, kraft paper and unbleached folding carton
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