Packaging Corporation of America Could Have Significant Upside
September 2, 2018
The markets are going strong, and the companies that reported solid results this last earnings season are doing especially well. As the U.S. economy continues to soar, I look for names related to the consumer to outperform. One stock that sticks out to me right now is Packaging Corporation of America (PKG), one of the largest producers of containerboard and corrugated packaging in the United States, and the third largest producer of uncoated freesheet in North America.
Those are fancy words, but it has been on a tear thanks to the pace of economic growth and demand for packaging. All those goods need to be in something.
In the most recent quarter, the company enjoyed pricing power in packaging and paper, driving operating profits in packaging to 18.3% from 17.2% a year ago. Management is confident that this will continue to offset input pricing pressure.
Also helping offset inflationary pressures was all-time record volume and pricing. The biggest growth segments were packaging for alcoholic beverages (cheers!), communications equipment, electric wiring and manufacturing.
Hanging Around Key Support
I pay attention to the charts as well as the fundamentals, and PKG has seen a big 185% rally from $45 back in February 2016 to $128 in January 2018. However, if is at a critical juncture right now. If it doesn’t hold key support around $110, it could be vulnerable to a pullback to $100.
Looking longer term, the stock is changing hands at a forward PE ratio of just 12, suggesting that there’s good potential for it to get back to its January highs around $130. I like PKG, but in the nearer term I see no urgency in owning it right now.