Packaging Corp. of America (PKG) recently rebounded from a long-term trend line after hitting a new multi-year high just above $26 in late April on earnings that met expectations. Estimates have been on the rise ever since, with the next year now projecting bullish 39% earnings growth.
Company Description
Packaging Corp. of America produces packaging products and various displays for retail applications in the United States. The company was founded in 1867 and has a market cap of $2.86 billion.
The most recent look at Packing Corp.’s business came in late April with much better than expected Q1 results. Revenue for the period was up 8% from last year to $551 million. Earnings also came in strong at 13 cents, directly in line with the Zacks Consensus Estimate. The company’s average earnings surprise over the last four quarters is now 49%.
Strategic Inventory Management
Packaging Corp.’s solid results were driven by increased shipments in its Corrugated segment, where products shipments per work day were up 12.4% from last year. The company also managed its inventories more effectively to improve its working capital, with containerboard inventories down 12,000 tons from the end of 2009.
Optimism From the Top
CEO Paul Stecko sounded an optimistic tone of moving forward, saying “Earnings are expected to be significantly higher driven primarily by higher containerboard and corrugated products pricing from our first quarter and our announced second quarter price increases.”
Balance Sheet
The company’s balance sheet also showed some signs of improvement from last year, with its cash and equivalents up $58 million to $198 million. Its total debt of $680 million is in line with last year.
Estimates Climbing
The analysts took the company’s lead, raising estimates on the bullish sentiment. The current-year estimate is up 22 cents in the last 2 months and 4 cents in just the last week. The next-year estimate is up 32 cents in the same time to $2.13, a bullish 39% growth projection.
In light of recent gains, shares of PKG trade at a slight premium to its peers with a forward P/E of 15X against 13X. Its P/B multiple of 2.57X is a premium to its peers 2.12X but still well in to value territory.
The Chart
PKH recently rebounded from a key trend line after pulling back from the new multi-year high set in late April just above $26. Look for more support from the trend line on any more weakness, take a look below.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service. Zacks Investment Research
