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Holiday Season Sets Packaging Industry for a Strong 2019

The Containers - Paper And Packaging industry is anticipated to finish 2019 on a strong note backed by increased consumer spending in the holiday season. Growing e-commerce activity and demand for sustainable packaging will drive the industry in the days ahead. Moreover, rapid urbanization and rising purchasing power in Asia will sustain demand for the packaging industry.

Holiday Season to Drive the Industry

Despite the trade war uncertainty and global risk factors, consumer spending is on the rise. Further, job growth and higher wages suggest more spending power, which bodes well for the packaging industry.

The booming e-commerce market continues to propel demand in the paper and packaging industry. Notably, online shopping has emerged one of the most popular online activities worldwide. Further, events like cyber Monday encourage online shopping and create demand for corrugated shipping boxes and other packaging materials. Packaging has gained utmost importance as it has to maintain the integrity and durability of a product so that it can withstand the complex product delivery process.

Per the National Retail Federation, the Thanksgiving weekend this year drew a record 189.6 million U.S consumers, up 14% year over year. In the five-day period, shoppers spent an average $361.90, 16% higher than last year. Notably, 142.2 million shopped on retailers’ websites, 124 million people shopped in stores and 75.7 million did both.

The National Retail Federation expects sales over the holiday season (Nov 1 to Dec 31) to surge to $727.9-$730.7 billion, projected growth of 3.8-4.2% over the prior year. Online and other non-store sales are expected to improve 11-14%. This is likely to reflect on the packaging industry’s top line in the fourth quarter of 2019.

Poised Well for the Long Run

Demand in the industry is usually fairly stable across economic cycles, owing to its high exposure (more than 60%) to stable consumer-oriented end-markets, such as food and beverages and healthcare. This ensures stability, steady growth and earnings for the industry.

Per Statista, global retail e-commerce sales are set to grow to $6.54 trillion in 2023 from $2.98 trillion in 2018. In developed markets, e-commerce has become second nature for consumers, while developing countries are catching up. India is one of the fastest growing e-commerce markets and is expected to reach $120 billion by 2020 from $39 million in 2017.
 
With the growing demand for sophisticated packaging, the industry is constantly striving to meet this by adopting new technology and innovative products. It is capitalizing on growing global demand for eco-friendly biodegradable packaging materials spurred by environmental concerns. Nowadays, packaging is not only containing and protecting the product but also includes sustainable packaging solutions to cater to increasing consumer awareness on environmental issues. Consequently, industry players will benefit from focus on maintaining quality of the package, conforming to industry-standards and ability to minimize carbon footprint.
 
Industry Ahead of S&P 500, Cheap Valuation

The industry has grown 6.7% over the past three months, outperforming the S&P 500’s rally of 4.8%.

The industry’s valuation looks cheap now. On the basis of forward 12-month P/E ratio, the industry is currently trading at 8.01 compared with S&P 500’s forward 12-month P/E ratio of 17.96.
 
Investors keen on the Containers - Paper And Packaging industry may consider Berry Global Group, Inc. BERY, Greif, Inc. GEF, Sealed Air Corporation SEE and UFP Technologies, Inc. UFPT. These stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These companies are set to deliver improved results for fiscal 2019. Estimates for fiscal 2019 have undergone estimate revisions lately. These companies also have a positive earnings surprise history trend.

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