The packaging industry has been gaining on steady demand for essential products amid the coronavirus pandemic, as packaging is an essential element for the distribution of these products. Moreover, industry players are benefiting from the booming e-commerce activities as customers are spending more time indoors. Apart from this, surging demand for eco-friendly packaging options continues to stoke growth.
Demand for Essential Products & E-Commerce to Drive Growth
The industry’s considerable exposure (more than 60%) to consumer-oriented essential end markets, such as food and beverages, and healthcare, keeps the demand for packaging applications fairly stable across economic cycles. On top of this, the coronavirus pandemic has led to a surge in demand for essential products, such as food, medicine, medical equipment and other critical products. This, in turn, is driving demand for the industry’s packaging solutions.
With rising e-commerce activities over the past few years, packaging has gained importance as it has to maintain the integrity and durability of a product to withstand the complex product-delivery process. The pandemic has led to a spike in e-commerce growth as consumers’ demand for online grocery, beverage and pharmaceuticals delivery services have increased following the stay-at-home orders imposed all over. Therefore, the industry has been witnessing escalating demand for corrugated packaging.
Packaging demand from a booming e-commerce market will keep supporting the industry. According to Statista, revenues in the e-commerce market are expected to see a CAGR of 8.2% over 2020-2024.
Eco-Friendly Packaging to Aid Industry
Demand for sophisticated packaging has been shooting up, and the industry is constantly striving to meet the same by adopting new technology and innovative products. It is also likely to gain from the growing global demand for environment-friendly biodegradable packaging materials, backed by customers’ increasing awareness on environmental issues. Industry players have already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods. Amcor plc AMCR is one frontrunner in this space which is focused on making packaging recyclable in a bid to encourage eco-friendly and sustainable living.
Few Headwinds Remain
Although the food and beverage market are rapidly growing across the globe, parts of these markets, including food services and restaurants, have been affected significantly by the pandemic. Closures of food outlets have thwarted demand for food-grade paper packaging products. Apart from high raw-material costs, the industry has been facing rising transportation and chemical costs. Therefore, these companies are now focusing on reducing costs and improving productivity to boost margins.
3 Packaging Stocks to Bet On
We are presenting three packaging stocks with positive earnings growth projections for the current year. These stocks have outperformed the S&P 500 index over the past six months. Each stock has been witnessing positive earnings growth revisions for the past 60 days. Our proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our three stocks in the past six months.
Berry Global Group, Inc. BERY: This Evansville, IN-based company currently sports a Zacks Rank #1 and has a VGM score of B. The company is a manufacturer and distributor of non-woven specialty materials, engineered materials and consumer packaging products, and also serves personal care, healthcare as well as beverage and food markets. It will likely gain from the soaring demand across the healthcare, hygiene and grocery end-markets. Moreover, the company’s RPC Group buyout has been opening up growth opportunities in the plastic and recycled packaging industry. Improving operational productivity and cost-reduction actions will drive the company’s near-term performance.
The Zacks Consensus Estimate for fiscal 2020 earnings is currently pegged at $4.51, suggesting year-over-year growth of 32.3%. The estimates have gone up 10.5% over the past 60 days. The company has a trailing four-quarter average earnings surprise of 16.3%. The stock has gained 41.4% over the past six months.
Clearwater Paper Corporation CLW: Based in Spokane, WA, Clearwater currently carries a Zacks Rank #2 and has a VGM score A. The company is a manufacturer and the foremost supplier of quality consumer tissue, away-from-home (AFH) tissue, parent roll tissue and bleached paperboard. Elevated demand for tissue products primarily owing to the pandemic will drive the company’s top line. The company is on track to achieve operational and financial benefits from the Shelby expansion. Its Paperboard business will gain from sustainable packaging trends and foodservice products. Furthermore, focus on reducing debt levels, and a prudent capital structure provide ample liquidity.
The Zacks Consensus Estimate for current-year earnings has been revised upward by 76% over the past 60 days to $4.62, calling for a whopping year-over-year jump of 1,908.7%. It has a trailing four-quarter average earnings surprise of 212.4%. The company’s shares have appreciated 66.7% over the past six months.
Sealed Air Corporation SEE: This Charlotte, NC-based company currently holds a Zacks Rank of 2 and has a VGM score B. The company is a global leader in food safety and security and product protection. It is likely to benefit from demand for packaging for essential goods and e-commerce amid the coronavirus crisis. Moreover, Sealed Air has been making steady progress on its reformation plan — Reinvent SEE Strategy — that is focused on driving bottom-line growth.
Over the past 60 days, the Zacks Consensus Estimate for 2020 earnings moved 9.4% north to $2.92, indicating year-over-year growth of 3.5%. The company has a trailing four-quarter average earnings surprise of 17.8%. Its shares have rallied 53.1% over the past six months.
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