Packaging Corporation of America (PKG) in Lake Forest, Ill., recently reported solid fourth-quarter earnings. Its sales and adjusted EPS beat the Street estimates by 6.6% and 32.7%, respectively. In addition, its board of directors recently approved a $1 billion share repurchase authorization. 

PKG’s current dividend yields 2.70%. The company has paid dividends for 17 consecutive years, and payouts have grown at an 11.1% CAGR over the past five years.

The stock has gained 10.1% in price over the past month to close yesterday's trading session at $148.18. In addition, it is currently trading 5.3% below its 52-week high of $156.54, which it hit on May 10, 2021. Also, PKG projects its first-quarter 2022 EPS will be around $2.50, and its revenues are expected to increase with the reopening of the economy. So, PKG’s near-term prospects look bright.

Here is what I think could influence PKG’s performance in the upcoming months:

Robust Financials

PKG’s net sales increased 19.2% year-over-year to $2.04 billion in the fourth quarter, which ended Dec. 31, 2021. The company’s income from operations grew 87.9% year-over-year to $355.70 million, while its net income came in at $216.50 million, representing a 75.3% year-over-year increase. Also, its EPS was $2.28, up 75.4% year-over-year.

High Profitability

In terms of the trailing-12-month asset turnover ratio, PKG’s 0.92% is 31.5% higher than the 0.70% industry average. Its 6.91% trailing-12-month CAPEX/Sales is 28% higher than the 5.40% industry average. Moreover, the stock’s 24.35%, 12.11%, and 9.75% respective trailing-12-month ROCE, ROTC, and ROTA are higher than the 12.03%, 7.59%, and 5.28% industry averages.

Favorable Analyst Estimates

For the current quarter ending March 31, 2022, analysts expect PKG’s EPS and revenue to grow 42.9% and 19.2%, respectively, year-over-year to $2.53 and $2.04 billion. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Furthermore, its EPS is expected to grow 16.4% per annum over the next five years.

POWR Ratings Show Promise

PKG has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, PKG has a B grade for Stability, which is in sync with its 0.84 beta.

The stock has a B grade for Quality, which is in sync with its higher-than-industry profitability ratios.

Beyond what I have stated above, we have given PKG grades for Growth, Value, Momentum, and Sentiment. Get all PKG ratings here.

PKG is ranked #7 of 23 stocks in the A-rated Industrial - Packaging industry.

Bottom Line

PKG reported impressive fourth-quarter results despite ongoing labor shortages, supply chain bottlenecks, and logistics constraints. It is well-positioned to benefit from the strong packaging demand backed by e-commerce. So, given the expected market volatility this year, we think it could be wise to scoop up the shares of this dividend-paying company now.

How Does Packaging Corporation (PKG) Stack Up Against its Peers?

PKG has an overall POWR Rating of B. However, one could also check out these other stocks within the Industrial - Packaging industry with an A (Strong Buy) rating: Greif Inc. (GEF) and Veritiv Corporation (VRTV).

PKG shares were trading at $146.79 per share on Friday afternoon, down $1.39 (-0.94%). Year-to-date, PKG has gained 7.81%, versus a -5.17% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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