European stock market: UBS raises conviction as Q2 earnings season approaches
On Wednesday, UBS analysts began coverage of Graphic Packaging Holding Company (NYSE:GPK) with a Neutral rating and set a price target of $24.00. With a current market capitalization of $6.7 billion and trading at a P/E ratio of 10.9x, InvestingPro analysis suggests the stock is currently undervalued. The analysts highlighted the company’s shift from a multiyear capital expenditure cycle to focusing on share repurchases, which aligns with an InvestingPro Tip indicating management’s aggressive share buyback activity.
UBS projects an increase in free cash flow for Graphic Packaging, expecting it to rise to approximately $750 million in 2026, up from about $400 million in 2025. This growth is anticipated to result in higher-than-consensus share repurchases, with UBS estimating repurchases of $175 million, $515 million, and $600 million for 2025, 2026, and 2027, respectively. These figures compare to the consensus estimates of $137 million, $201 million, and $113 million for the same years. The company’s current debt-to-equity ratio of 1.81 and annual revenue of $8.7 billion provide important context for these capital allocation decisions.
The analysts noted that Graphic Packaging is facing challenges due to volume declines among its Consumer Packaged Goods and Quick Service Restaurant customers. UBS models a 2% volume decline in 2025, which is slightly more optimistic than the consensus estimate of a 3% decline. The optimism is attributed to Graphic Packaging’s sustainability-focused innovation sales.
Despite these challenges, UBS sees potential for the company’s earnings per share to grow at a compound annual growth rate of 15% from 2025 to 2027. However, the analysts’ EBITDA estimates for 2026 and 2027 are 1-3% below consensus, leading to a neutral rating on the stock, with an overall view of a 10% upside potential from current levels. For deeper insights into GPK’s valuation and growth prospects, including additional ProTips and comprehensive financial analysis, visit InvestingPro.
In other recent news, Graphic Packaging Holding Company reported its first-quarter 2025 earnings, revealing an adjusted earnings per share (EPS) of $0.51, which fell short of the $0.59 forecast. The company also reported revenue of $2.1 billion, slightly below the expected $2.15 billion. Following the earnings announcement, Citi analyst Anthony Pettinari adjusted the price target for Graphic Packaging to $23.00, maintaining a Neutral rating on the stock. Graphic Packaging has also adjusted its full-year EBITDA guidance by 12% at the midpoint due to a challenging economic environment, including input cost inflation and declining sales in its Beverage segment.
Amid these financial developments, the company announced a new $1.5 billion share repurchase authorization. Additionally, Graphic Packaging recently amended its corporate governance structure by eliminating supermajority voting requirements, aiming to simplify the company’s voting process. This change was approved by shareholders at the annual stockholders meeting. The company also elected Class III directors and ratified the appointment of PricewaterhouseCoopers LLP as its independent registered public accounting firm for the year. These recent developments highlight the company’s efforts to navigate current economic challenges while making strategic adjustments to its governance and financial strategies.
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