The Zacks Containers - Paper and Packaging industry will continue to benefit from solid demand from consumer-oriented end-markets, as packaging is integral to product distribution. Booming e-commerce activities, and rising demand for sustainable and eco-friendly packaging options due to increasing environmental concerns will continue to drive the industry’s growth. Pricing actions implemented by industry players will help offset the impacts of the ongoing supply-chain disruptions and rising costs.
Companies like Packaging Corporation of America PKG, Brambles Limited BXBLY, AptarGroup ATR and Greif, Inc. GEF are set to gain from the demand trends.
Industry Description
The Zacks Containers - Paper and Packaging industry comprises companies that manufacture paper and plastic packaging products. The packaging solutions provided by the industry help protect and preserve products, extend the shelf life, and cut down on wastage and loss across the wide and lengthy range of distribution channels. The products range from containerboard and corrugated packaging to flexible and rigid plastic packaging. Some companies manufacture dispensing pumps, closures, aerosol valves and applicators for the beauty, personal, home care and healthcare markets. The industry serves a wide array of markets, including food, beverage, food services and other consumer products, such as beauty, personal care and home care. The players also cater to the chemical, agribusiness, medical, pharmaceutical, electronics and industrial markets, to name a few.
What's Shaping the Future of the Containers - Paper and Packaging Industry
E-commerce Acts as a Key Catalyst: With the rise of e-commerce, packaging has gained the utmost importance, as it helps maintain the integrity of the product and withstand the complexities of delivery. In 2023, e-commerce accounted for more than 19% of retail sales worldwide. The same is projected to increase to 25% by 2027. According to Statista, global e-commerce sales are expected to see a compound annual growth rate (CAGR) of 9.5% between 2024 and 2029. Turkey is expected to lead the retail e-commerce development with a projected CAGR of 11.58% over this period, closely followed by Brazil and India. The U.S. retail e-commerce market is expected to cross the $1-trillion mark in 2027 and grow at a CAGR of 9% over 2024-2029. China is expected to reach $2 trillion in 2027. Also, given the industry’s significant exposure (more than 60%) to consumer-oriented end markets, such as food and beverages and healthcare, the demand for packaging applications has been stable across economic cycles.
Demand for Eco-Friendly Packaging to Aid Industry: The preference for environmentally friendly biodegradable packaging materials is witnessing a steady rise globally, courtesy of customers’ increasing awareness. The industry is constantly striving to meet the same by adopting the latest technology and bringing innovative products. Industry players have begun incorporating recycled content into production methods. By maximizing recycling, the industry can implement environmentally and economically sustainable production methods.
Pricing to Counter Impacts of Costs on Margins: The industry participants continue to witness higher raw material costs, stemming from various factors like general inflationary pressure, limited availability of certain raw materials and global transportation disruptions. Higher labor, transportation and chemical costs aggravated their woes. The shortage of labor is another concern. The companies have been implementing cost-reduction actions for a while, which are likely to sustain margins. Players focus on streamlining their operations and realigning with high-growth key markets to bolster their performances.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Containers - Paper and Packaging industry is a 10-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #59, which places it at the top 24% of the 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. The industry's earnings estimates for the year have moved up 2% from that provided at the beginning of 2024.
Before we present a few Containers - Paper and Packaging stocks that can be retained in one’s portfolio, it is worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Containers - Paper and Packaging industry has outperformed its sector but lagged the S&P 500 over the past year. The industry has gained 15.6% compared with the sector’s growth of 14.5%. Meanwhile, the S&P 500 has gained 24.7%.
One-Year Price Performance
Industry's Current Valuation
The forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Containers - Paper and Packaging companies, shows that the industry is currently trading at 19.90 compared with the S&P 500’s 14.69 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.67. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 26.66X and as low as 14.15X, with the median at 18.71X.
4 Containers - Paper and Packaging Stocks to Buy
Brambles: The company recently reported fiscal 2024 results, with revenues improving 7% year over year attributed to pricing actions and increased volumes. Underlying profit rose 17% at constant currency, reflecting pricing growth combined with the company’s asset productivity initiatives. Also, backed by strong cash flows, the company increased its annual dividend by 30% to 34 cents per share. BXBLY’s focus on asset efficiency and network productivity has strengthened its business, optimized operations and reduced the capital intensity of the business. The company is also advancing its digital transformation plans. In sync with this, automation investments made across its service centers have been delivering cost savings while improving efficiency. BXBLY shares have gained 32.5% in the past three months.
The Zacks Consensus Estimate for the Sydney, Australia-based company’s ongoing year’s earnings has moved up 11% in the past 60 days. The estimate indicates year-over-year growth of 9.7%. BXBLY currently flaunts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price: BXBLY
Packaging Corp: The company has been witnessing strong demand for corrugated products and containerboards lately. Prices and mix are expected to be up in both Packaging and Paper segments in the ongoing quarter as the company continues to implement previously announced increases, along with higher containerboard export prices. Although there will be one less shipping day for the corrugated business in the third quarter, volumes and shipments per day will likely be higher, setting a third-quarter record. The company will gain from robust e-commerce activities that continue to support packaging demand. The requirement for food, beverages, medication and other consumer products will help sustain the packaging segment’s growth. Backed by its solid balance sheet, the company will be able to invest in boosting capacity and acquisitions to capitalize on these trends. PKG shares have gained 15.2% in the past three months.
The Zacks Consensus Estimate for Packaging Corp’s ongoing year’s earnings has been revised 5% upward in the past 60 days. PKG has a trailing four-quarter earnings surprise of 8.6%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 4.4%. The company currently carries a Zacks Rank #2 (Buy).
Price: PKG
AptarGroup: The company’s Beauty segment will continue to gain from improved trends in beauty and personal care markets. The Pharma segment is seeing steady demand growth for prescription and consumer healthcare. Given the sales momentum in elastomer components and active material solutions, AptarGroup is expanding its capacity to produce elastomer components for injected medicines and active material science solutions, which will drive near-term growth. The company is progressing well on its business transformation plan that will drive top-line growth, boost operational excellence, enhance its approach to innovation and improve organizational effectiveness. Backed by its efforts to bring the latest products into the market, the company remains the preferred choice for renowned brands worldwide. Focus on acquisitions to expand the scope of technologies, geographic presence and product offerings will also aid growth. Shares of ATR have gained 4.6% over the past three months.
The Zacks Consensus Estimate for AptarGroup’s fiscal 2024 earnings has been unchanged in the past 60 days. The figure indicates year-over-year growth of 12%. This Crystal Lake, IL-based company has a trailing four-quarter earnings surprise of 7.2%, on average. The stock estimated a long-term growth rate of 9% and has a Zacks Rank #2 at present.
Price: ATR
Greif: The company continues to make strategic acquisitions to expand its geographic reach and its product portfolio. In March 2024, it closed the acquisition of IPACKCHEM, which is a global leader in premium barrier, and non-barrier jerry cans and small plastic containers. The acquisition is expected to be accretive to Greif’s EBITDA margin and free cash flow. The company has been implementing cost-rationalization measures within its system, which has led to a solid free cash flow performance. It will continue to benefit from its focus on operational execution, capital discipline, and a strong and diverse product portfolio. Its recent price increases in response to raw material, energy, labor and transportation cost hikes will aid revenues. GEF recently sold Delta Petroleum Company, Inc., a North American filling and logistics services business, as it no longer aligns with Greif’s core growth strategy of expansion into resin-based industrial products serving higher-growth and less cyclical end markets. GEF shares have gained 1% over the past three months.
The Zacks Consensus Estimate for GEF’s fiscal 2024 earnings has been revised 1.6% upward over the past 60 days. Greif has a trailing four-quarter earnings surprise of 143.4%, on average. The Delaware, OH-based company currently carries a Zacks Rank #2.
Price: GEF
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