Reasons to Add Packaging Corporation (PKG) to Your Portfolio

Packaging Corporation of AmericaPKG looks promising at the moment on the back of demand in the Packaging segment, improved activities in the Wallula and DeRidder mill, the Sacramento Container acquisition and growth in e-commerce. We are positive on the company's prospects and believe this is the right time to add the stock to your portfolio, as it is poised to carry the bullish momentum ahead.

Let's delve deeper and analyze the factors that make this a producer of containerboard and packaging products an attractive investment option.

What's Working in Favor of Packaging Corporation?

Solid Rank, Score: Packaging Corporation currently carries a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. Consequently, the company appears to be a compelling investment proposition at the moment.

You can see the complete list of today's Zacks #1 Rank stocks here.

An Outperformer: Packaging Corporation's shares climbed 27% in the past year, outperforming the industry 's growth of 8%.

Strong Q4 Results: The company reported fourth-quarter 2017 adjusted earnings of $1.56 per share, up 27% year over year. Net sales for the quarter were $1.68 billion, up 13% from $1.47 billion recorded in the year-ago quarter. Both beat the Zacks Consensus Estimate. Packaging Corporation expects demand in Packaging segment to remain strong in first-quarter 2018. It anticipates first-quarter earnings will be $1.52 per share which will likely benefit from the U.S. tax reform.

Positive Earnings Surprise History: The company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive earnings surprise of 1.96%.

Positive Estimate Revisions, Growth Projections: The Zacks Consensus for fiscal 2018 and fiscal 2019 has gone up 11% and 15%, respectively, over the past 60 days. The Zacks Consensus Estimate for earnings is currently pegged at $7.57 for fiscal 2018 which reflects year-over-year growth of 25.8%. For fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at $8.36, year-over-year growth of 10.5%.

Packaging Corporation has a long-term expected earnings per share growth of 8.3%.

Superior Return on Assets (ROA): It currently has a ROA of 9.5%, while the industry's ROA is 5.6%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Growth Drivers in Place: In October 2017, Packaging Corporation completed the Sacramento Container acquisition. Activities are well underway to optimize and integrate these facilities into its Packaging business platform. The acquisition proved to be an excellent fit for the company in the fourth quarter. This buyout is likely to boost its operations both geographically and strategically in the near future.

Packaging Corporation purchased about 250,000 tons of containerboard in 2017 and expects to continue in the same pace in 2018 until the complete transformation of Wallula mill. The company expects Wallula mill's cease of No. 3 machine to be completed by May 2018. Further, it anticipates its DeRidder No. 1 machine to start in a couple of weeks. Notably, this will produce 150,000 tons per year.

In the Paper segment, the company has started implementing price increases. It will aid margin performance in the coming quarters.

Further, e-commerce is an important part of its business. The company anticipates increase in demand in boxes which is generally driven by e-commerce growth. These days customers find a lot of different channels to sell-through, including e-commerce. The company has a wide base of customers and expects the business to grow in 2018.

Other Stocks to Consider

Some other top-ranked stocks in the same sector include Mobile Mini, Inc. MINI , AptarGroup, Inc. ATR and Graphic Packaging Holding Company GPK . Mobile Mini flaunts a Zacks Rank #1 while AptarGroup and Graphic Packaging Holding carries a Zacks Rank of #2.

Mobile Mini has a long-term earnings growth rate of 14%. The company's shares have rallied 28% in a year's time

AptarGroup has a long-term earnings growth rate of 8.5%. Its shares have been up 20% in the past year.

Graphic Packaging has a long-term earnings growth rate of 5%. Over a year's time, shares of the company have gained 16%.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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