On Wednesday, Citi adjusted its outlook on Packaging (NYSE:PKG) Corp. of America (NYSE:PKG), reducing the stock's price target to $181 from $183, while continuing to hold a Neutral rating on the shares. The revision followed the company's performance, which saw its shares decline by 4.7% in contrast to the S&P 500's 1.2% gain.
The company's first-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) fell short of expectations, alongside a second-quarter forecast that did not meet consensus estimates. Analysts pointed out that Packaging Corp . of America reported $2.07 versus the anticipated $2.22. Despite realizing $40 per ton from the first-quarter containerboard price increase, year-over-year benchmark prices have leveled off.
Cost pressures continue to mount for the company as it faces steady inflation in a variety of expense categories. These include old corrugated containers (OCC), chemicals, freight, electricity, interest, taxes, and other costs, which are squeezing profit margins. The firm highlighted that the containerboard EBITDA margin was the weakest it has been in years, at approximately 18%.
On a positive note, Packaging Corp. of America has seen a return to volume outperformance, with double-digit percentage increases in box volumes in the first quarter and an April book-to-bill ratio up 8% year-over-year. However, the industry's modest oversupply situation is curbing the company's ability to raise prices.
Citi's analysis concluded that with the stock trading at 10.4 times EBITDA, compared to a five-year average of 9.3 times, the firm's position remains neutral. The updated price target of $181 reflects these considerations.
InvestingPro Insights
As Packaging Corp. of America (NYSE:PKG) navigates through market headwinds, real-time data from InvestingPro offers a clearer picture of the company's financial health and stock performance. With a market capitalization of $15.22 billion and a P/E ratio that has adjusted to 20.07 in the last twelve months as of Q1 2024, PKG shows signs of resilience in valuation. Despite a revenue decline of 6.16% in the same period, the company has demonstrated a strong return over the last five years, which may interest long-term investors.
InvestingPro Tips highlight the company's commitment to shareholder returns, with a notable high shareholder yield and a record of maintaining dividend payments for 22 consecutive years. Additionally, the stock's low price volatility and the ability of its cash flows to sufficiently cover interest payments provide a degree of stability for investors. Analysts also predict that PKG will remain profitable this year, a sentiment echoed by the stock's positive one-year price total return of 21.78%.
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