The global packaging industry has been growing driven by increasing urbanisation, development of retail chains along with the mushrooming healthcare and cosmetics sectors. An increase in living standards and personal disposable income in the developing economies triggers consumption across a broad range of products that eventually leads to growth in demand for the packaging of these goods.
Consequently, customer convenience remains the top priority for the packaging companies and they remain constantly focused on evolving new packaging designs. These companies are focused on expanding geographic reach and realigning product offerings to reduce operational costs.
At present, the market is witnessing intense restructuring and consolidation because of the overcapacity. The preference for value-added services and customized packaging solutions to provide convenience, safety, durability as well as freshness protection will continue to boost the industry going forward.
The Zacks categorized Containers – Paper and Packaging sub-industry has thus outperformed the S&P 500 on a year-to-date basis. The industry has gained 12.1% while the S&P 500 clocked a rise of 9.3%. We note that the industry is also favorably placed as it occupies a space in the top 25% of the Zacks classified industries (65 out of the 256).
The sub industry falls under the industrial products sector (one of the 16 broad Zacks sectors) which put up a 28.5% growth in earnings in first-quarter 2017. None of the S&P participants in the sector have released earnings results yet. For the sector, an 11.9% growth in earnings is projected for second-quarter 2017. This makes the Industrial Products sector one of the five sectors projected to log a double-digit growth this earnings season. (Read more: Bank Earnings in the Spotlight)
Consequently, investing in the packaging space is a prudent move. Further, given that the curtains on second-quarter earnings are about to rise, it will be wise to zero in on stocks that are expected to perform well this earnings season. With packaging stocks, AptarGroup, Inc. (NYSE:ATR) and Bemis Company, Inc. (NYSE:BMS) both scheduled to report on Jul 27, this may be a good time to analyze which is the better stock to hold at this moment.
Rank Comparison
AptarGroup carries a Zacks Rank #2 (Buy) while Bemis has a Zacks Rank #3 (Hold).
Going by the Zacks model, companies carrying a Zacks Rank #2 have chances of performing better than the broader market in the quarters ahead. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks worth considering in the industry include Crown Holdings, Inc. (NYSE:CCK) and UFP Technologies, Inc. (NASDAQ:UFPT) . Both carry the same rank as AptarGroup.
Price Performance
Year to date, AptarGroup has gained 21.1%, outperforming the Zacks categorized Containers-Paper/Plastic sub-industry, which has moved up 12.1%. In comparison, Bemis is a laggard, declining 1.6%.
Valuation
The EV/EBITDA metric is usually used to compare two stocks within the same industry or sector and find out which has an edge with metrics such as P/E because it is not affected by the different capital structures of the two companies.
With a forward 12-month EV/EBITDA ratio of 9.83, Bemis is undervalued compared with the industry’s EV/EBITDA of 12.52. Though AptarGroup is also undervalued compared with the industry, with an EV/EBITDA ratio of 11.91, however, it is pricier than Bemis.
Inventory Turnover Ratio
In the trailing 12 months, the inventory turnover ratio for Bemis and AptarGroup has been 5.65% and 4.81%, respectively compared with the industry’s level of 6.67%.
This is a signal of inefficiency, and implies either poor sales or excess inventory. Though both the companies have inventory turnover ratio lower than the industry level, Bemis scores a little better on this front.
Return on Assets (ROA)
Our research shows that the average one-year trailing 12-month ROA for AptarGroup is pegged at 7.86%, higher than the 6.78% for Bemis and 5.92% for the Containers-Paper/Plastic sub industry.
Dividend Yield
Bemis’ dividend yield over the last one-year period is 2.59%, higher than the sub industry’s figure of 1.80%. With a dividend yield of 1.44%, AptarGroup’s shareholders earn significantly lower dividend yield than Bemis as well as the industry at large.
Net Margins
In the past 12 months, AptarGroup’s net margin has been 8.75%, much ahead of the industry average of 6.26% and Bemis’ 6.31%. Thus, AptarGroup is a better bet on this front.
Earnings History and ESP
Considering earnings surprise history trend, AptarGroup has delivered an average positive earnings surprise of 1.78% in the last four quarters. Bemis clearly loses on this front as it has a negative earnings surprise of 1.93% in the trailing four quarters.
AptarGroup is expected to post an earnings beat in the next quarter. This is because the company has the right combination of two key ingredients – a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1, 2 or 3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. The combination of AptarGroup’s Earnings ESP of +1.04% and a Zacks Rank #2 makes us reasonably confident of an earnings beat.
Meanwhile, Bemis’ Zacks Rank #3, which when combined with ESP of -1.75%, makes surprise prediction difficult for this quarter.
Estimate Revisions, Growth Projections
For Bemis, estimates for the second quarter and fiscal 2017 have tanked 20% and 11%, respectively, in the last 90 days. The Zacks Consensus Estimate for the second quarter projects a year-over-year decline of 15.14% and for fiscal 2017 predicts a year–over-year fall of 5.10%.
AptarGroup’s estimates have moved up 4% for the second quarter and 5% for fiscal 2017, in the past 90 days, reflecting investors’ optimism in the stock. The Zacks Consensus Estimate for the second quarter projects a year-over-year growth of 5.18% and for fiscal 2017 predicts a year-over-year growth of 10.13%.
AptarGroup is the clear winner of this round.
Conclusion
Our comparative analysis shows that Bemis holds an edge over AptarGroup when considering valuation, dividend yield and inventory turnover. However, AptarGroup is superior when considering price performance, margins, earnings revisions, positive growth projections and chances of an earning beat in the next quarter. Clearly, AptarGroup is a better bet this earnings.
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Crown Holdings, Inc. (CCK): Free Stock Analysis Report
Bemis Company, Inc. (BMS): Free Stock Analysis Report
AptarGroup, Inc. (ATR): Free Stock Analysis Report
UFP Technologies, Inc. (UFPT): Free Stock Analysis Report
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