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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 & Consumer Products to Support Packaging Demand: 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 will remain stable across economic cycles. With the rise of e-commerce, packaging has gained utmost importance as it helps maintain the integrity of the products and withstand the complexities of delivery. E-commerce is expected to surge due to rising Internet penetration, widespread smartphone adoption and the convenience of shopping online. Additionally, advancements in digital payments, logistics and personalization are making the online shopping experience faster, safer and more customer-centric. This presents a major growth opportunity for the Containers - Paper and Packaging industry.
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 and labor costs. The shortage of labor is another concern. The imposition of tariffs adds to the margin pressure. The companies have been implementing pricing strategies and cost-reduction actions to negate these headwinds. They are also streamlining their operations and taking steps to realign with high-growth key markets to bolster their performance.
Zacks Industry Rank Indicates Bright Prospects
The 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 #95, which places it at the top 39% of the 243 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.
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 underperformed its sector and the S&P 500 over the past year. The industry has declined 34.7% against the sector’s growth of 2.4%. Meanwhile, the S&P 500 has gained 19%.
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 15.98X compared with the S&P 500’s 13.79X and the Industrial Products sector’s forward 12-month EV/EBITDA of 23.92X. This is shown in the charts below.
Over the last five years, the industry traded as high as 24.25X and as low as 14.54X, with the median at 20.58X.
5 Containers - Paper and Packaging Stocks to Watch
AptarGroup: The company’s 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 asthma, COPD and ophthalmic treatments. The Beauty segment has seen higher sales in personal and home care products. 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. Additionally, the company’s strong presence in resilient markets, such as chronic disease medications and essential consumer staples with consistent demand regardless of economic uncertainty, helps ensure long-term stability. The company recently hiked its dividend by 7%.
The Zacks Consensus Estimate for AptarGroup’s fiscal 2025 earnings has moved up 0.5% in the past 60 days and indicates year-over-year growth of 4.3%. This Crystal Lake, IL-based company has a trailing four-quarter earnings surprise of 8.3%, on average. The company has an estimated long-term earnings growth rate of 8.35% and a Zacks Rank #2 (Buy) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Karat Packaging: The company will gain from its efforts to increase its market share, and robust demand for its eco-friendly products and other offerings. With growing pressure on countries across the globe to implement regulations to ban Styrofoam and single-use plastic, the company is poised well to capitalize on increased demand for compostable products. KRT is ramping up its manufacturing capabilities to meet the growing demand and implementing initiatives to significantly boost online sales. The growing preference for food delivery, take-out and at-home dining is another key catalyst. The company is also diversifying its sourcing footprint and lowering sourcing from China. It is implementing plans to expand across other Asian countries and Latin America to boost supply-chain resilience and flexibility.
The Zacks Consensus Estimate for Karat Packaging’s 2025 earnings suggests growth of 0.6% from last year’s reported figure. The estimate has moved up 1.2% over the past 60 days. The Chino, CA-based company has a Zacks Rank #2 at present.
Brambles: The company’s digital initiatives are enabling new business growth, asset efficiency improvements and productivity benefits. It is delivering cost savings across its operations linked to network optimization, operational excellence and procurement initiatives. Benefits from improved asset efficiency and ongoing supply chain and overhead productivity initiatives are expected to dive margin expansion. The fundamental improvements made to the business through transformation activities have enhanced the stability of Brambles’ Free Cash Flow generation and its strong financial position In addition to driving financial gains, its transformation activities have strengthened its competitive advantage.
The Zacks Consensus Estimate for the Sydney, Australia-based company’s current-year earnings has remained unchanged over the past 60 days. The estimate indicates year-over-year growth of 8.7%. BXBLY currently carries a Zacks Rank #3 (Hold).
Packaging Corp.: 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 13.5%. PKG has a trailing four-quarter earnings surprise of 0.26%, on average. The Lake Forest, IL-based company has an estimated long-term earnings growth rate of 16.5%. The company currently carries a Zacks Rank of 3.
Sealed Air: Around 63% of the company’s revenues come from the packaging of protein, foods, fluids and goods for the medical and life sciences industries. The food segment continues to benefit from the shift in demand for case-ready, shrink bags and pre-packaged meals and snacks designed for home consumption. In the medical and life sciences portfolio, demand for protected packaging solutions for medical supplies, pharmaceuticals, and personal protective equipment remains high. It is also benefiting from growth in online shipments of medical equipment and pharmaceuticals. Sealed Air continues to capitalize on global e-commerce growth and increased demand for recyclable materials, fiber-based solutions and automated packaging. The company has embarked on a three-year cost take-out to grow program ("CTO2Grow Program"), which has been designed to drive annualized savings of $140-$160 million by the end of 2025. Per the CTO2Grow Program, the company seeks to optimize its portfolio with a focus on automation, digital and sustainable solutions, streamline supply-chain footprint and drive SG&A productivity.
The Zacks Consensus Estimate for Sealed Air’s 2025 earnings has remained unchanged over the past 60 days and indicates year-over-year growth of 13.5%. SEE has a trailing four-quarter earnings surprise of 19%, on average. The Charlotte, NC-based company carries a Zacks Rank of 3 at present.
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This article originally published on Zacks Investment Research (zacks.com).
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