4 Packaging Stocks to Watch Despite Industry Headwinds

The Zacks Containers -  Paper and Packaging industry has been facing weak demand due to lower consumer spending amid an inflationary backdrop. Pricing actions implemented by the industry players will help offset the impacts of supply-chain disruptions and elevated costs. The industry will eventually gain support from rising e-commerce activities and solid demand for sustainable and eco-friendly packaging options due to increasing environmental concerns.Companies like Packaging Corporation of America PKG, Amcor plc AMCR, AptarGroup ATR and Sonoco Products Company SON are set to gain from their efforts to capitalize on these trends.About the IndustryThe 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. They 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 IndustryPersisting Low Volumes & High Costs Pose Challenges: The industry has been witnessing volume declines due to lower consumer spending on goods, reflecting the inflationary scenario. Also, customers have been lowering their inventory, which had built up in response to high demand and supply-chain issues. This had an impact on the top-line performances of packaging companies. They also encountered supply-chain disruptions and higher material, labor and transportation costs. The companies have been implementing cost-reduction actions for a while in this situation to sustain margins. They have also been streamlining their operations and taking steps to realign with high-growth key markets to bolster their performances. There are also signs that supply-chain issues are easing and customer destocking seems to be over, which could bring some relief in the near future.E-commerce Acts as a Key Catalyst: With rising e-commerce activities over the past few years along with the effect of the pandemic, the importance of packaging has increased manifold as it maintains the integrity and durability of a product. Packaging also helps withstand the complex product delivery process. In 2023, e-commerce accounted for more than 19% of retail sales worldwide. According to Statista, global e-commerce revenues are expected to reach $4,324 billion in 2025 and see a compound annual growth rate (CAGR) of 8% between 2025 and 2029.  The number of users is expected to amount to 3.6 billion by 2029. These solid projections bode well for the Containers - Paper and Packaging industry. Also, the industry has significant exposure (more than 60%) to consumer-oriented end markets, such as food and beverages as well as healthcare. Demand for packaging applications remains fairly stable for these sectors across economic cycles, thus ensuring consistent demand for packaging solutions.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 of environmental issues. 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.Zacks Industry Rank Indicates Bleak ProspectsThe Zacks Containers - Paper and Packaging industry is a 12-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #176, which places it at the bottom 29% of the 248 Zacks industries.The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. However, it is worth taking a look at the industry’s shareholder returns and current valuation first.Industry Versus Broader MarketThe Containers - Paper and Packaging industry has underperformed the S&P 500 but outpaced the sector over the past year. The industry has gained 9.6% compared with the S&P 500’s growth of 21.8%. The Industrial Products sector has, meanwhile, risen 6.9%.One-Year Price PerformanceIndustry's Current ValuationOn the basis of the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Containers - Paper and Packaging companies, we see that the industry is currently trading at 17.97 compared with the S&P 500’s 13.96X and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.85X. This is shown in the charts below.Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)Over the last five years, the industry traded as high as 20.28X and as low as 13.61X, the median being 17.17X.4 Containers - Paper and Packaging Stocks to Keep an Eye onSonoco: The company’s consumer packaging business is primarily benefiting from the Ball Metalpack (now Sonoco Metal Packaging) acquisition. SON is also implementing aggressive price actions across its businesses to counter higher raw material and non-material inflation. This, combined with its focus on optimizing businesses through productivity improvement, standardization and cost control, will drive Sonoco’s results in the near term.  The company is selling its Thermoformed & Flexible Packaging business, expected to be completed in the first half of 2025. While the net proceeds will be used to lower debt, the sale will also accelerate Sonoco's portfolio simplification strategy to focus on its core businesses. Through its concerted efforts, SON expects to achieve an annual EBITDA of $1 billion by 2026.The Zacks Consensus Estimate for Sonoco’s fiscal 2025 earnings has moved 17% north in the past 60 days. The estimate indicates 23% year-over-year growth. The Hartsville, SC-based company has a trailing four-quarter earnings surprise of 1%, on average. SON has an estimated long-term earnings growth of 5%. The company currently sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here. Price & Consensus: SONPackaging Corp.: The company’s fourth-quarter 2024 earnings and revenues improved year over year, due to higher volumes and price/mix in both segments. Its corrugated plants set records for total shipments and shipments per day in the fourth quarter of 2024 and the full year. This momentum is expected to continue in 2025 as well. The company’s packaging business, which accounts for around 91% of its revenues, is poised to gain from strong demand in e-commerce and stable demand for the packaging of meat, fruit and vegetables, processed food, beverages and medicines. PKG maintains a balanced approach toward capital allocation to boost growth and maximize shareholder returns. Over the past several years, the company has made extensive capital investments in its packaging segment to improve productivity and efficiencies at containerboard mills and corrugated products facilities.The Zacks Consensus Estimate for Packaging Corp.’s fiscal 2025 earnings indicates year-over-year growth of 17.3%. PKG has a trailing four-quarter earnings surprise of 3.6%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 8.3%. The company currently carries a Zacks Rank #3 (Hold).Price & Consensus: PKGAmcor: Backed by its strong balance sheet and annual free cash flow of more than $1 billion, the company continues to invest actively in various areas to drive growth. Particularly, its strategy to expand capacity in higher-growth, higher value-added, more packaging-intensive segments like healthcare, protein, pet food, premium coffee and hot fill beverage containers will bear fruit. Efforts taken to increase market share in emerging markets as well as focus on innovative products and sustainable packaging offerings will be key catalysts.  Amcor has entered into a merger agreement with Berry Global Group, Inc. (BERY). The deal will create a global leader in consumer packaging solutions with remarkable innovation capabilities and scale. Amcor currently estimates $650 million in benefits from identified costs, growth and financial synergies by the end of the third year of closing. The Zacks Consensus Estimate for Amcor’s ongoing year’s earnings has remained unchanged in the past 60 days. The estimate indicates year-over-year growth of 5.7%. Amcor has a trailing four-quarter earnings surprise of 1.47%, on average. AMCR has an estimated long-term earnings growth rate of 7.1% and a Zacks Rank of 3.Price & Consensus: AMCRAptarGroup: The company delivered year-over-year growth in its top and bottom lines in the fourth quarter of 2024, aided by improved performances in the pharma and closures segments. The Pharma segment has been witnessing healthy demand for its proprietary drug delivery systems used for allergic rhinitis, emergency medicines and central nervous system therapies, as well as royalty revenues.  The Beauty segment has also been seeing higher sales in masstige fragrance, personal care and home care. Backed by its efforts to bring innovative 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.The Zacks Consensus Estimate for AptarGroup’s fiscal 2025 earnings indicates year-over-year growth of 2.3%. This Crystal Lake, IL-based company has a trailing four-quarter earnings surprise of 9.3%, on average. The company has an estimated long-term earnings growth rate of 10.2% and a Zacks Rank of 3 at present.Price & Consensus: ATRZacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>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 Packaging Corporation of America (PKG): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks