Chicago, IL – October 25, 2024 – Today, Zacks Equity Research discusses Suzano SUZ, Stora Enso Oyj SEOAY, Klabin KLBAY, Sylvamo SLVM and Sappi SPPJY.
Link: https://www.zacks.com/commentary/2357183/5-paper-related-products-stocks-to-ride-on-positive-industry-trends
The Zacks Paper and Related Products industry is set to benefit from increased packaging demand from rising e-commerce activities. Sustained demand from consumer-oriented sectors, such as food, beverages and healthcare, lends further support. The industry's growth is propelled by the escalating consumer inclination toward paper as an environmentally friendly packaging choice amid rising environmental awareness.
The Zacks Paper and Related Products industry comprises companies that manufacture and sell paper and paper products. The industry is highly diversified in terms of products ranging from graphic paper and packaging paper to absorbent hygiene products. Graphic papers, which include printing and writing papers, and newsprint, are utilized for communication purposes.
The industry provides packaging solutions for liquid, food, pharmaceutical, beauty, household, commercial and industrial products. It also produces fluff and specialty pulps utilized in absorbent hygiene products, tissues and paper products. The industry caters to a wide array of sectors, including food and beverage, farming, home and personal care, health, retail, e-commerce, and transport. Industry players meet customers’ shipping, storage and display requirements with sustainable solutions.
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 $1.5-trillion mark in 2026 and grow, seeing a CAGR of 9% between 2024 and 2029. This presents a major growth opportunity for the Paper and Related Products industry.
Increased M&A Activities to Transform the Paper & Packaging Landscape: Recently, there has been a surge in merger and acquisition activities within the industry as companies position themselves to seize growth opportunities, and enhance their packaging and sustainability offerings, among other strategic objectives. Smurfit Westrock was formed by merging two major paper and packaging industry players — Smurfit Kappa and WestRock — on July 5, 2024. Smurfit Westrock has an unmatched geographic reach spanning 42 countries.
Given this scale and equipped with the two companies’ highly complementary portfolios and innovative sustainability capabilities, Smurfit Westrock is likely to be the preferred packaging partner for companies and customers across the globe. International Paper has entered an agreement to acquire the entire issued share capital of DS Smith. This marks a strategic move to strengthen International Paper’s corrugated packaging business in Europe and prioritize sustainable packaging.
Sustainability Acts as the Key Driver: Increasing demand for sustainable packaging options and eco-friendly packaging solutions will support the paper market in the days ahead. The paper industry has already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods. Investment in breakthrough technologies will propel the demand for high-quality paper products.
Pricing Actions & Improving Efficiency to Offset Cost Inflation: The industry is witnessing rising costs of transportation, chemical and fuel, and supply-chain headwinds. Therefore, industry players are increasingly focusing on pricing actions and cost reduction, and resorting to automation in manufacturing to boost productivity and efficiency.
The Zacks Paper and Related Products industry is a 10-stock group within the broader Basic Materials sector. The industry currently carries a Zacks Industry Rank #98, which places it in the top 39% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bullish 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.
Before we present a few Paper and Related Products stocks that investors can keep an eye on, it is worth looking at the industry’s stock-market performance and valuation picture.
The Paper and Related Products industry has outperformed the sector and the S&P 500 over the past year. The stocks in this industry have gained 38.4%, whereas the Basic Materials sector has rallied 17.5%. The S&P 500 has grown 37% in the said time frame.
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly-used multiple for valuing Paper and Related Products companies, we see that the industry is currently trading at 10.74X compared with the S&P 500’s 19.51X and the Basic Material sector’s trailing 12-month EV/EBITDA of 12.39X.
Over the last five years, the industry traded as high as 12.38X and as low as 4.07X, the median being 7.27X.
Suzano: The company recently closed the acquisition of two industrial assets from Pactiv Evergreen in Arkansas and North Carolina, boosting its production capacity by roughly 420,000 metric tons of integrated paperboard per year. The assets offer strategic advantages, given the high availability and competitive prices for wood and energy in the region and access to railways, ports and highways.
SUZ will now become a major supplier of paper used to produce liquid packaging board in North America. It is currently the largest supplier of hardwood market pulp in North America. Suzano also bought a 15% stake in Lenzing from its current majority stakeholder, B&C Group. Lenzing is a global supplier of premium cellulosic fibers for the textile and non-woven industry. This is in sync with Suzano’s strategy to grow in new markets.
The company’s $2.8-billion Cerrado project commenced production in July. It is the world’s largest plant with a single eucalyptus pulp production line. This facility, with an annual production capacity of 2.55 million tons of eucalyptus pulp, will boost SUZ’s production capacity by more than 20%, enhancing its scale and competitiveness in the pulp business.
The Zacks Consensus Estimate for 2024 earnings for the Salvador, Brazil-based integrated pulp and paper producer has surged 147.5% in the past 90 days. The estimate suggests year-over-year growth of 60.8%. Suzano currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Sappi: The market conditions for dissolving pulp have been favorable, as low downstream viscose staple fiber inventories and a constrained dissolving pulp supply continue to support dissolving pulp prices. The company is progressing well with its Thrive25 strategic program. This entails focusing on growing its dissolving pulp capacity, expanding packaging and specialty papers in all regions, and reducing exposure to the graphic paper markets.
Its ongoing restructuring actions are expected to yield significant cost savings. SPPJY is also focusing on maintaining financial health and progressing toward attaining a net debt target of $1 billion. Sappi is striving to drive operational excellence by improving its cost position and production efficiencies.
The Zacks Consensus Estimate for the Johannesburg-based company’s fiscal 2024 has moved up 16.7% over the past 90 days. SPPJY currently carries a Zacks Rank #2 (Buy).
Stora Enso: The company’s ongoing profitability and cash flow improvement initiatives, coupled with favorable market conditions in some segments, have led to an improved earnings trend for four consecutive quarters. It has set a target of fixed cost savings of €120 million from its profit improvement program initiated in February 2024. The program’s full impacts are expected to be witnessed in 2025.
The consumer board investment at the Oulu site in Finland is progressing on schedule, with production expected to start in the second quarter of 2025. This will support SEOAY’s long-term strategy to build market share in renewable and circular packaging solutions, which matter the most to its customers. Stora Enso has recently announced that it intends to sell 12% of its total forest assets of 1.4 million hectares in Sweden for €6.3 billion. The proceeds will be utilized to lower its debt levels.
Stora Enso has decided to discontinue the divestment process of the Beihai packaging production site in China. The company believes that the site will continue to enhance its position as a leading global supplier, especially in the Asia Pacific. SEOAY has leading market positions in sectors with potential for long-term growth, including high-end consumer packaging, wood construction and innovative biomaterials.
The Zacks Consensus Estimate for 2024 earnings for the Helsinki, Finland-based company has moved up 5.3% in the past 90 days. The consensus estimate for Stora Enso indicates year-over-year growth of 176%. The company has a trailing four-quarter earnings surprise of 47.8%, on average. SEOAY currently has a Zacks Rank #3 (Hold) and a long-term estimated earnings growth of 50.8%.
Klabin: In the second quarter of 2024, the company achieved a sales volume of around 995,000 tons, up 16% year over year. The paper segment made a significant contribution, with a 33% increase in the volume sold of coated board and containerboard, reflecting the ramp-up of Paper Machines 27 and 28. In September 2023, KLBAY inaugurated the Puma II project, with R$12.9 billion invested in installing the two paper machines — PM27 and PM28 — which have a total annual prsoduction capacity of 910,000 tons of paper.
The MP28 machine also marked Klabin’s debut in the white paperboard market, reinforcing the expansion of its product portfolio. Klabin began operations at its new corrugated cardboard packaging factory, Figueira Project, in Piracicaba, São Paulo. The unit has an annual production capacity of 240 thousand tons per year and will allow KLBAY to reach 1.2 million tons of corrugated cardboard conversion capacity annually. Klabin’s efforts to improve efficiency in its operations and lower costs will also aid earnings.
The Zacks Consensus Estimate for the São Paulo, Brazil-based company’s 2024 earnings has moved up 16.7% over the past 90 days. Klabin currently has a Zacks Rank #3 and long-term estimated earnings growth of 4.6%.
Sylvamo: Stronger order bookings will continue to aid its top-line growth. The company has initiated a cost-reduction program called Project Horizon, which is focused on streamlining its organization and cost structures in an effort to make a leaner, stronger company. SLVM is on track to realize savings of at least $110 million by the end of 2024. Around $80 million of the target will come from operational improvements in its mills and supply chains, and the balance from the reduction in selling and administrative expenses.
The company continues to lower its debt levels and maintains a strong financial position, enabling it to invest in its business. It has a pipeline of more than $200 million of high-return capital projects, which will boost its earnings and cash flow profile.
Earnings estimates for Sylvamo for 2024 have moved 7.2% north over the past 30 days. The estimate indicates year-over-year growth of 13.7%. Memphis, TN-based SLVM has a trailing four-quarter earnings surprise of 23.97%, on average. The company has a long-term estimated earnings growth of 2.5% and a Zacks Rank #3 at present.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Klabin SA (KLBAY) : Free Stock Analysis Report
Stora Enso Oyj (SEOAY) : Free Stock Analysis Report
Sappi Ltd. (SPPJY) : Free Stock Analysis Report
Suzano S.A. Sponsored ADR (SUZ) : Free Stock Analysis Report
Sylvamo Corporation (SLVM) : Free Stock Analysis Report
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