WestRock Company
WRK
is poised to gain from solid demand for corrugated packaging, containerboard as well as food and beverage consumer packaging in the wake of the coronavirus pandemic. Further, the e-commerce boom and acquisitions will drive growth. However, waning demand across some of WestRock’s businesses and higher input costs are concerns.
The provider of paper and packaging solutions, which has a market capitalization of $11.6 billion, carries a Zacks Rank #3 (Hold). It has a
VGM Score
of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.
Factors Favoring WestRock
Positive Earnings Surprise History:
WestRock has a trailing four-quarter average earnings surprise of 23.38%.
Price Performance:
Shares of WestRock have gained 8.4% over the past year, outperforming the
industry
’s growth of 4.9%.
Positive Earnings Estimates
The company’s earnings estimate for fiscal 2021 is currently pegged at $3.12 per share, suggesting year-over-year growth of 13.04%. The consensus mark has moved 21.4% north over the past 30 days.
Growth Drivers in Place
Packaging products are essential for the distribution of food, beverage and pharmaceutical products. Hence, WestRock’s Consumer Packaging segment is gaining from sustainable paper and packaging options as well as significant demand in food, food service, and beverage packaging categories owing to the pandemic. Remarkably, this category represents 80% of the segment’s revenues. Further, the company will benefit from the e-commerce boom that will fuel demand for boxes. WestRock’s corrugated packaging business is benefiting from improved box shipment, as well as increased demand from distribution, industrial and agricultural customers as the economy gradually recovers.
WestRock has been witnessing robust demand for containerboard and corrugated packaging in Brazil. It is well poised to capitalize on this growth in the region, with the ramp-up of the Porto Feliz box plant, and the completion of the TresBarras project in the first half of fiscal 2021. The company will also reap the benefits of strategic capital projects in its mill and converting systems in the near term. Once completed, these projects are expected to contribute to the company’s EBITDA.
WestRock acquired KapStone Paper and Packaging Corp in 2019, with the integrations on track. The acquisition has helped the company cement its presence in the Western United States. Further, KapStone’s corrugated packaging operations continue to enhance WestRock’s North American corrugated packaging business and provide complementary products. It also focus on improving margins of its North American corrugated packaging business. These moves are likely to aid the company. Apart from this, it is focused on reducing debt through its Pandemic Action Plan.
However, there are a few factors that are likely to hinder growth in the near term.
The pandemic has disrupted demand patterns across few of WestRock’s businesses. Commercial print demand is likely to be strained due to limited public events, and reduced retail and direct mail advertising. Luxury goods and industrial products have also been hit hard. This will prevail until the situation stabilizes. Further, the resurgence of COVID-19 cases in many markets has given rise to uncertainties.
Stocks to Consider
Some better-ranked stocks in the basic materials space are
Pretium Resources, Inc.
PVG
,
BHP Group
BHP
and
Silvercorp Metals Inc.
SVM
, all carrying a Zacks Rank #2, at present. You can see
the complete list of today’s Zacks #1 Rank stocks here.
Pretium has an expected earnings growth rate of a whopping 25.5% for the current year. The company’s shares have gained 15.3% over the past year.
BHP Group has an estimated earnings growth rate of 31.3% for fiscal 2021. Its shares have increased 10.4% in the past year.
Silvercorp Metals has a projected earnings growth rate of 40% for fiscal 2021. The stock has appreciated 20.5% in a year’s time.
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