Packaging Corporation of AmericaPKG remains well poised for growth, on the back of focus on acquisition strategy, solid containerboard demand and progress in DeRidder mill. The producer of containerboard and packaging products holds immense potential owing to a few solid growth drivers.
A positive trend in estimate revisions reflects optimism over the company's bright prospects. In the past 30 days, the Zacks Consensus Estimate inched up 0.7% to $6.09 for 2017 and 0.4% to $6.79 for 2018.
Packaging Corporation's stock price history is also encouraging. In fact, so far this year, shares of the company have risen 37.6%, outperforming the industry , which has showcased an increase of just 13.2%.
Here's what might drive the stock higher and why investors should hold on to the stock.
Positive Earnings Surprise History: Packaging Corporation has surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 2.60%.
Favorable Zacks Rank & Score: Packaging Corporation currently carries a Zacks Rank #3 (Hold) with an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of A, along with some other key metrics, makes the company a solid choice for investors.
Upbeat Growth Projections: The Zacks Consensus Estimate for earnings reflects year-over-year growth of 24.8% for 2017 earnings and 39% for 2018.
Further, the company's long-term expected earnings growth rate of 13% holds promise.
Cheap Valuation: Packaging Corporation's trailing 12-month EV/EBITDA ratio is 10.9, while the industry's average trailing 12-month EV/EBITDA is 13.3. Consequently, the stock is cheaper at this point based on this ratio.
Return on Assets (ROA): Packaging Corporation currently has a ROA of 12.7%, while the industry's ROA is 7.4%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Growth Drivers in Place
The company's first machine in DeRidder facility is progressing well. The company believes its production will increase to roughly 150,000 tons year over year in 2017.
Further, Packaging Corporation will gain from focus on its acquisition strategy. In 2016, it acquired TimBar Corporation and Columbus Container, Inc. These acquisitions are strategic fits for the company. On Oct 2, it closed the acquisition of all assets of Sacramento Container Corporation, and 100% membership of Northern Sheets, LLC and Central California Sheets, LLC for $265 million. The buyout is likely to reinforce the company's operations both geographically and strategically.
Moreover, the company will gain from its wide variety of packaging products, which include conventional shipping containers used to protect and transport manufactured goods, multi-colored boxes, and displays with strong visual appeal.
Investors might want to hold on to the stock at present as it has ample prospects of outperforming peers in the near future.
Stocks to Consider
Better-ranked stocks in the same sector include AGCO Corporation AGCO , Alarm.Com Holdings, Inc. ALRM and Komatsu Ltd. KMTUY . All three stocks flaunt a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .
AGCO has an expected long-term earnings growth rate of 13.5%.
Alarm.Com has an expected long-term earnings growth rate of 16.7%.
Komatsu has an expected long-term earnings growth rate of 12.7%.
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