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4 Packaging Stocks to Watch As E-Commerce Fuels Demand

By Zacks Investment ResearchStock MarketsJun 09, 2021 08:38AM ET
4 Packaging Stocks to Watch As E-Commerce Fuels Demand
By Zacks Investment Research   |  Jun 09, 2021 08:38AM ET
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The Zacks Containers – Paper and Packaging (NYSE:PKG) industry is gaining from robust demand for food, beverage and hygiene products amid the coronavirus pandemic, as packaging is an essential element for their distribution. The industry is also benefiting from booming e-commerce activities as customers are preferring to stay indoors. Surging demand for eco-friendly packaging options should also spur growth.

E-Commerce to Support Demand: Due to increasing e-commerce activities over the past few years, packaging has gained importance as it maintains the integrity and durability of a product during the complex product-delivery process. E-commerce activities have stepped up amid the COVID-19 pandemic, spurring demand for containerboard and corrugated boxes. According to Statista, revenues in the e-commerce market are expected to see a CAGR of 6.3% over 2021-2025, which will continue supporting the industry.

Also, surging demand for essential products, such as food, medicine, medical equipment and other critical products in response to the pandemic, has been driving demand for packaging solutions. Further, the industry’s considerable exposure (more than 60%) to consumer-oriented end-markets, such as food and beverages, and healthcare, keeps the demand for packaging applications fairly stable across economic cycles and ensures stable earnings growth. The industry is also likely to gain from the growing global demand for eco-friendly biodegradable packaging materials, backed by customers’ increasing awareness of environmental issues. Increasing demand for sustainable packaging and the industry’s constant efforts to meet the same by adopting new technology and innovative products should drive growth. Industry players have already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods.

However, the industry lately has been plagued with higher raw-material costs, and rising transportation and chemical costs. Therefore, the industry players are now focusing on reducing costs and improving productivity to boost margins.

Industry Performance

The Zacks Containers – Paper and Packaging industry has gained 13.1% over the past six months compared with the Zacks Industrial Products sector’s growth of 18%, while the S&P 500 has gained 16.4%.

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4 Containers – Paper and Packaging Stocks to Watch

We are presenting four Paper and Packaging stocks carrying a Zacks Rank #2 (Buy) or 3 (Hold) and a VGM Score of A or B. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) 2 or 3, when combined with a VGM Score of A or B, offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

These stocks also have positive earnings growth projections for the current year and have been witnessing upward revisions, of late.

Berry Global Group (NYSE:BERY), Inc. BERY: This Evansville, IN-based company manufactures and distributes non-woven specialty materials, engineered materials and consumer packaging products. It also serves personal care, healthcare as well as beverage and food markets. The company will likely gain from soaring demand across the healthcare, hygiene and grocery end-markets. Furthermore, the company’s RPC (NYSE:RES) Group buyout has been opening up growth opportunities in the plastic and recycled packaging industry. Improving operational productivity and cost-reduction actions will likely propel its near-term performance.

The Zacks Consensus Estimate for the company’s fiscal 2021 earnings has moved 5.4% north in the past 60 days to $5.68. The estimate suggests year-over-year growth of 17.1%. The stock has gained 25.4% over the past six months. The company currently carries a Zacks Rank #2 and has a VGM Score of B. It has a trailing four-quarter earnings surprise of 24.71%, on average.

Packaging Corporation of America PKG: Based in Lake Forest, IL, Packaging Corporation is the third-largest producer of containerboard products and uncoated freesheet paper in North America. The company’s packaging business, which contributes around 85% of its revenues, is gaining from elevated demand for meat, fruit and vegetables, processed food, beverages, medicine, and other consumer products in the wake of the pandemic, fueling demand for its corrugated products packaging. Further, it is poised to gain from surging e-retail activities. Moreover, cost-reduction actions in response to higher material costs may aid margin.

The Zacks Consensus Estimate for the company’s ongoing-year earnings is currently pegged at $7.39, indicating year-on-year growth of 27.8%. The same has also been revised 9.6% upward in 60 days. The stock has gained 8% in the past six months. It currently carries a Zacks Rank of 3 and has a VGM Score of A. The company has a trailing four-quarter average earnings surprise of 9.3%.

Sealed Air (NYSE:SEE) SEE: Based in Charlotte, NC, Sealed Air is a global leader in food safety and security, and product protection. Demand for protected packaging solutions for medical supplies, pharmaceuticals, and personal protective equipment should drive growth. Moreover, escalating demand for temperature assurance packaging solutions, e-commerce sales and consumer-oriented packaging will likely boost Sealed Air’s results. In addition, Sealed Air has been making steady progress on its reformation plan — Reinvent SEE Strategy — focused on stoking bottom-line growth. Apart from this, the company is anticipated to benefit from acquisitions and cost reductions, driving operational excellence and innovations.

The Zacks Consensus Estimate for the company’s 2021 earnings has been revised upward by 3.6% over the past 60 days to $3.49. This also indicates year-over-year growth of 9.4%. The company’s shares have appreciated 27.7% over the past six months. This stock currently carries a Zacks Rank #3 and a VGM Score of B. It has a trailing four-quarter average earnings surprise of 21.4%.

Sonoco Products (NYSE:SON) Company SON: Based in Hartsville, SC, Sonoco is a leading provider of consumer packaging, industrial products, protective packaging and packaging supply chain services. The company expects demand in most of its consumer and industrial businesses to remain healthy in the near term. Sonoco’s Consumer Packaging segment will continue to perform well in the current year as sales from food packaging keep benefiting from at-home eating habits. Moreover, the Protective Solutions business will witness higher demand in the pharmaceutical and appliance-served markets in the near term. Its focus on productivity and cost-control should also aid margin growth.

The Zacks Consensus Estimate for the company’s current-year earnings has moved 0.8% north over the past 60 days to $3.57 per share. This indicates year-over-year growth of 4.7%. The stock has gained 10.1% over the past six months. The company currently carries a Zacks Rank of 3 and has a VGM Score A. It has a trailing four-quarter earnings surprise of 4.96%, on average.

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4 Packaging Stocks to Watch As E-Commerce Fuels Demand

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4 Packaging Stocks to Watch As E-Commerce Fuels Demand

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