Shares of Packaging Corporation of America PKG have scaled a new 52-week high of $204.58 on Aug 23, before closing the session lower at $203.81.
PKG currently has a market capitalization of $18.3 billion and flaunts a Zacks Rank #1 (Strong Buy).
So far this year, Packaging Corp’s shares have gained 25.1%. PKG has outperformed the industry's 14% growth and the S&P 500’s 18.1% rise. Meanwhile, the Industrial Products sector has gained 7.9%.
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What’s Driving the PKG Stock?
Solid Packaging Demand in Q2: The company’s packaging segment witnessed strong demand for corrugated products and containerboard through the second quarter of 2024. Containerboard production was a record 1,281,000 tons to meet this demand. Total shipments, with one additional shipping day, were up 10.9%. PKG also built up some inventory to prepare ahead for higher demand in the back half of the year.
Q2 Results Exceed Expectations: Packaging Corp reported adjusted earnings per share (EPS) of $2.20 in the second quarter, which beat the Zacks Consensus Estimate of $2.12. The reported figure was also higher than the company’s guidance of $2.07.
However, the bottom line decreased 5% year over year as gains from higher volumes in both segments and decreases in costs were partially offset by lower prices and mix.
Upbeat Q3 Expectations: PKG expects prices and mix in both the Packaging and Paper segments to be higher as it continues to implement previously announced increases along with higher containerboard export prices.
Despite one less shipping day for the corrugated business, the company expects higher containerboard volume in the third quarter. Shipments-per-day will be higher and attain a new third-quarter record.
While volumes in the paper segment will be slightly lower primarily due to the timing of the back-to-school business received in the second quarter, it will be offset by higher prices. Operating and converting costs should be higher primarily due to seasonal electricity usage and prices and slightly increased recycled fiber costs, with scheduled outage expenses expected to be slightly lower.
Packaging Corp expects earnings of $2.45 per share for the third quarter. The projected figure indicates 19.6% year-over-year growth.
The Zacks Consensus Estimate PKG’s third-quarter and 2024 earnings has moved 2% north in the past 30 days and 1% north, respectively. This reflects analysts' growing optimism about the company's earnings prospects.
E-Commerce Growth: Packaging products are essential for distributing food, beverage and pharmaceutical products. The Packaging segment accounts for around 91% of the company’s revenues. The segment will continue to gain from stable packaging demand for meat, fruit and vegetables, processed food, beverages, medicine and other consumer products. Also, Packaging Corp stands to gain from the strong growth in e-commerce activities that continues to support demand for packaging solutions.
Investment in Capacity Aided by Solid Balance Sheet: Packaging Corp’s total debt-to-total capital ratio was 0.41 as of Jun 30, 2024, lower than the industry’s 0.64. Its times interest earned ratio is currently 22.9 compared with the industry’s 4.1. Backed by its solid balance sheet, the company will be able to invest in boosting capacity and acquisitions to capitalize on the expected surge in packaging demand.
Another Packaging Stock Near 52-Week High
Shares of Amcor plc AMCR have scaled a new 52-week high of $11.11 on Aug 23 before closing the session a tad lower at $11.10. The company recently reported fourth-quarter fiscal 2024 (ended Jun 30, 2024) adjusted EPS of 21 cents, which improved 9.3% from the prior-year quarter’s 19 cents.
The improvement was attributed to year-over-year volume growth and lower costs. Also, the company returned to volume growth after seven straight quarters of declines, mainly led by the Flexibles segment. AMCR currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some other top-ranked stocks from the Industrial Products sector are Mueller Water Products MWA and Northwest Pipe Company NWPX. Both companies currently sport a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Mueller Water Products’ 2024 earnings is pegged at 93 cents per share, which indicates year-over-year growth of 47.6%. The consensus estimate for earnings has gone up 17.7% in the past 60 days. The company has a trailing four-quarter average earnings surprise of 64.1%. MWA shares have gained 44.8% year to date.
Northwest Pipe has an average trailing four-quarter earnings surprise of 20.15%. The Zacks Consensus Estimate for NWPX’s 2024 earnings is pinned at $2.96 per share, which indicates year-over-year growth of 41.6%. Estimates have moved 20.3% north in the past 60 days. The company’s shares have gained 51.3% so far this year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
