The packing industry has faced several challenges since last year, such as supply chain constraints, rising labor and raw material costs, high inflation, and declining consumer spending.
However, the Fed’s aggressive interest hikes to curb inflation have shown results as inflation eased for the sixth consecutive month in December, with the Consumer Price Index (CPI) rising 6.5% year-over-year and declining 0.1% sequentially. Moreover, the U.S. economy added 517,000 jobs in January, significantly higher than analysts’ estimates of 187,000.
As inflation eases and the labor market remains tight, consumer spending is expected to pick up. The packing industry is expected to gain from the rise in consumer spending on various products as it plays a crucial role in maintaining quality and safety standards and extending a product's shelf life.
In the long term, the packing industry is expected to play a crucial role as consumption per capita rises. Moreover, packing companies are innovating by introducing easily recyclable packaging material. The global flexible packaging market is expected to grow at a CAGR of 5.1% between 2023 and 2028.
To that end, it could be wise for investors to buy fundamentally strong packaging stocks Graphic Packaging Holding Company (GPK), Greif, Inc. (GEF), and Karat Packaging Inc. (KRT).
Graphic Packaging Holding Company (GPK)
GPK provides fiber-based packaging solutions to food, beverage, foodservice, and other consumer products companies. It operates through three segments: Paperboard Mills; Americas Paperboard Packaging; and Europe Paperboard Packaging.
On January 16, 2023, GPK announced that it was moving its Bristol, United Kingdom, beverage packaging manufacturing operations to a new, state-of-the-art facility nearby. This new facility would be twice the size of its current base and is expected to help meet the increasing global demand for fiber-based packaging once it becomes fully operational in the fourth quarter.
In terms of forward non-GAAP PEG, GPK’s 0.39x is 80% lower than the 1.93x industry average. Likewise, its 1.23x forward EV/Sales is 18.1% lower than the 1.50x industry average.
For the fiscal fourth quarter that ended December 31, 2022, GPK’s net sales increased 20% year-over-year to $2.39 billion. Its adjusted net income attributable to GPK increased 63.1% year-over-year to $181 million.
In addition, its adjusted EBITDA increased 44.9% year-over-year to $413 million, while its adjusted EPS came in at $0.59, representing a 63.9% increase from the prior-year quarter.
GPK’s EPS and revenue for the quarter ending March 31, 2023, are expected to increase 30.6% and 6.4% year-over-year to $0.63 and $2.39 billion, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 6.3% over the past nine months to close the last trading session at $23.13.
GPK’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Industrial - Packaging industry, it is ranked #5 out of 22 stocks. It has a B grade for Growth, Value, and Quality.
Click here to see the additional POWR Ratings of GPK for Momentum, Stability, and Sentiment.
Greif, Inc. (GEF)
GEF engages in the production and sale of industrial packaging products and services worldwide. It operates through three segments: Global Industrial Packaging; Paper Packaging & Services; and Land Management.
In terms of forward non-GAAP P/E, GEF’s 11.20x is 20.2% lower than the 14.04x industry average. Likewise, its 0.96x forward EV/Sales is 36% lower than the 1.50x industry average.
On December 15, 2022, GEF announced the acquisition of Lee Container Corporation, Inc. GEF’s President and CEO, Ole Rosgaard, said, "Lee is a premiere organization and fits perfectly within the strategic parameters of our repeatable M&A playbook. We foresee abundant opportunities to continue growing Lee organically as well as seeking add-on acquisitions to further broaden our footprint in jerrycans and small plastics."
For the fiscal fourth quarter that ended October 31, 2022, GEF’s gross profit increased 4.7% year-over-year to $310.10 million. The company’s operating profit increased 8.4% from the prior-year quarter to $153.40 million. In addition, its adjusted EBITDA increased 3.5% year-over-year to $218.70 million. Net income attributable to GEF and EPS came in at $99.50 and $1.67, respectively.
Analysts expect GEF’s EPS to increase 10% per annum over the next five years. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 18% to close the last trading session at $70.59.
GEF’s POWR Ratings reflect this promising outlook. GEF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #2 in the same industry. It has a B grade for Growth, Value, and Quality.
We have also given GEF grades for Momentum, Stability, and Sentiment. Get all GEF ratings here.
Karat Packaging Inc. (KRT)
KRT manufactures and distributes single-use disposable products in plastic, paper, biopolymer-based, and other compostable forms used in various restaurant and foodservice settings. It provides food and take-out containers, bags, tableware, equipment, gloves, and other products under the Karat Earth brand.
In terms of forward non-GAAP P/E, KRT’s 11.74x is 33.7% lower than the 17.71x industry average. Likewise, its 0.83x forward EV/Sales is 53.8% lower than the 1.80x industry average.
For the fiscal third quarter that ended September 30, 2022, KRT’s net sales increased 7.1% year-over-year to $109.99 million. Net income attributable to KRT increased 61% year-over-year to $6.10 million. Its adjusted EBITDA increased 30.1% year-over-year to $11.75 million. Also, its adjusted EPS came in at $0.33, representing an increase of 50% year-over-year.
Analysts expect KRT’s EPS for the quarter ending March 31, 2023, to increase 27.8% year-over-year to $0.46. Its revenue for the quarter that ended December 31, 2022, is expected to increase 5.2% year-over-year to $96.12 million. Over the past month, the stock has gained 4.6% to close the last trading session at $15.56.
KRT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. Within the Industrial - Packaging industry, it is ranked #3. It has an A grade for Momentum and a B for Value, Sentiment, and Quality.
In addition to the POWR Ratings stated above, one can see KRT ratings for Growth and Stability here.
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GPK shares were trading at $23.21 per share on Thursday morning, up $0.08 (+0.35%). Year-to-date, GPK has gained 4.31%, versus a 7.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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