Why Should You Hold Packaging Corp (PKG) in Your Portfolio?

Packaging Corporation of America PKG is benefitting from rising e-commerce activities and stable packaging demand for food, beverages and medicines. The company's cost-management and process-optimization efforts are also driving growth.Let's look at some factors that make PKG a stock to be retained in portfolios.

Shares of the Zacks Rank #3 (Hold) company have gained 7.8% in the past six months compared with the industry's growth of 1.9%.

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for the company's 2023 earnings is pegged at $9.14 per share, whereas the same for 2024 is pegged at $9.05. The consensus estimate for 2023 and 2024 has moved north by 3% and 2%, respectively, in the past 30 days.

PKG has a trailing four-quarter average earnings surprise of 6.2%.

Packaging Corp projects first-quarter 2023 earnings of $2.23 per share. The company expects its Packaging segment to deliver a higher total volume, with corrugated plants having four additional shipping days. Prices will fall as a result of the recent reductions in published domestic containerboard prices. The company anticipates lower export prices as well.In the Paper segment, Packaging Corp expects prices to move slightly higher, with fairly flat sales volume.

Packaging Corp is gaining from solid growth in e-commerce activities that has led to an increase in demand for packaging. Packaging products are essential for distributing food, beverage and pharmaceutical products. The Packaging segment, which accounts for 91% of the company's revenues, will continue to be supported by stable packaging demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products.The company is executing outstanding cost-management and process-optimization efforts at its mills and corrugated product plants. It expects its Packaging segment to deliver a higher total volume in the first quarter of 2023, with corrugated plants having four additional shipping days. Despite the weak demand, Packaging Corp continues to perform above the pre-COVID levels. It expects shipments in the first quarter to be 6% higher than first-quarter 2019 shipments on a per-day basis.

As part of its recent strategic action, Packaging Corp acquired all assets of Advanced Packaging Corporation in December 2021. The deal supports Packaging Corp's focus on enhancing its containerboard portfolio through organic box volume growth and strategic box plant acquisitions. The buyout will boost the company's mill capacity and box plant operations.Moreover, the company completed debt refinancing in October 2021, which extended its overall debt maturity from 8.5 years to 16.3 years and lowered its overall interest rate from 3.9% to 3.5%.

Packaging Corp is facing inflationary pressures, high-interest rates and persisting supply-chain disruptions due to unfavorable global and domestic economic conditions. As customers are working to lower their high inventory levels, it has impacted the order flow and demand for Packaging Corp's products.

Labor costs and certain indirect costs are expected to remain elevated due to the temporary idling of some containerboard mill operations in the fourth quarter. In addition, labor and benefits costs, and other timing-related expenses were higher in 2022. Inflated prices for many chemicals, particularly starch and caustic soda, also remain a headwind, which will be somewhat offset by lower wood and recycled fiber prices, energy prices, and reduced scheduled maintenance outage expenses. High interest and non-operating pension expenses, and a higher tax rate are also expected to hurt margins.

Some better-ranked stocks from the Industrial Products sector are OI Glass OI, Tenaris TS and Illinois Tool Works ITW. OI and TS flaunt a Zacks Rank #1 (Strong Buy) at present, and ITW has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.OI Glass has an average trailing four-quarter earnings surprise of 16.4%. The Zacks Consensus Estimate for OI's 2023 earnings is pegged at $2.57 per share. This indicates an 11.7% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved 16% north in the past 60 days. OI's shares have gained 62.2% in the past six months.Tenaris has an average trailing four-quarter earnings surprise of 11.5%. The Zacks Consensus Estimate for TS’ 2023 earnings is pegged at $6.04 per share. This indicates a 39.5% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved north by 17% in the past 60 days. Its shares have gained 6% in the past six months.The Zacks Consensus Estimate for Illinois Tool Works’ fiscal 2023 earnings per share is pegged at $9.61, suggesting an increase of 4.8% from that reported in the last year. The consensus estimate for fiscal 2023 earnings moved 4% upward in the last 60 days. ITW has a trailing four-quarter average earnings surprise of 0.9%. Its shares have gained 19.2% in the past six months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report

O-I Glass, Inc. (OI) : Free Stock Analysis Report

Packaging Corporation of America (PKG) : Free Stock Analysis Report

Tenaris S.A. (TS) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

Related Quotes