Which packaging stock is a better buy?
Greif, Inc. (WEF) and Packaging Corporation of America (PKG) are leading players in the packaging industry. WEF operates through Global Industrial Packaging; Paper services and packaging; and land management segments. It produces and sells steel, plastic, fiber, flexible and corrugated containers, packaging accessories and containerboard and provides blending, filling and packaging services.
PKG manufactures and sells corrugated cardboard and corrugated packaging products through its Packaging and Paper segments to protect goods during shipment. It also produces multi-color boxes, displays and meat and wax boxes for the agricultural industry.
Growing demand for sustainable packaging materials and solutions in the retail, food and beverage, health and personal care sectors is expected to drive the growth of the packaging industry. The strong market demand is stimulated by the increase in online salesespecially since the start of the pandemic.
Although the industry is struggling to cope with supply chain constraints, the introduction of smart packaging solutions and the growing demand should keep many businesses in this space afloat. The U.S. packaging industry is expected to grow at a pace 2.9% CAGR to reach $218.12 billion by 2027. Hence, the GEF and PKG stand to benefit.
While PKG has risen 2% since the start of the year, GEF has jumped 4.2%. GEF is a clear winner with gains of 5.5% over the past six months compared to PKG’s returns of 3.2%. But which of these actions is a better choice now? Let’s find out.
Recent financial results
For the second quarter of fiscal 2022 ended April 30, 2022, GEF’s revenue increased 24.4% year-on-year to $1.67 billion. The company’s gross profit was $338.70 million, an increase of 27.4% over the prior year period. Its operating profit was $190.10 million for the quarter, indicating a 5.2% year-over-year decline.
WEF net profit was $125.10 million, down 16.5% from the same period a year earlier. Its Class A common stock EPS was down 16.5% year-over-year to $2.09. As of April 30, 2022, the company had $108.70 million in cash and cash equivalents.
For the first quarter of fiscal 2022 ended March 31, 2022, PKG’s net sales increased 18.2% year-on-year to $2.14 billion. The company’s gross profit was $533.20 million, representing an increase of 32.1% over the prior year period. Its operating income was $356.50 million for the quarter, representing a 49.6% increase over the prior year period.
While its non-GAAP net income rose 51.4% year-on-year to $255.70 million, its non-GAAP EPS rose 53.7% to $2.72. As of March 31, 2022, the company had $628.60 million in cash and cash equivalents.
Past and expected financial performance
Over the past three years, GEF’s revenue, net income and EPS grew at CAGRs of 15.3%, 32.7% and 32.1%, respectively.
GEF’s EPS is expected to increase 35.7% year-over-year in fiscal 2022, ending October 31, 2022, and decrease 5.3% in fiscal 2023. Its revenue is expected to grow 16.1% in fiscal 2022 and decline 3% in fiscal 2023. Its EPS is expected to grow at a rate of 10% annually over the next five years.
Over the past three years, PKG’s revenue, net profit and EPS have increased by 4.5%, 5.8% and 5.7% CAGR, respectively.
Analysts expect PKG’s EPS to grow 22.7% year-on-year in fiscal 2022, ending December 31, 2022, and 2.6% in fiscal 2023. Its revenue is expected to grow 11.6% year-over-year in fiscal 2022 and 1.9% in fiscal 2022. Its EPS is expected to improve at a rate of 9 .7% per year over the next five years.
In non-GAAP PEG terms, PKG is currently trading at 2.31x, 110% higher than GEF’s 1.10x. In terms of EV/Forward Sales, GEF’s 0.83x compares to PKG’s 1.73x.
PKG’s revenues over the last 12 months are 1.3 times greater than those of GEF. In addition, PKG is also profitable, with 24.9% Gross margin against 19.7% for the GEF.
Additionally, PKG’s ROE, ROA, and ROTC of 26.1%, 11.4%, and 14.2% compare to GEF’s 23.5%, 7.4%, and 10.1%, respectively.
While GEF has an overall A rating, which translates to a strong buy in our own POWR Rankings system, PKG has an overall B rating, which is equivalent to buy. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
Both GEF and PKG received B grades for quality, which is consistent with their industry-leading profitability ratios. WEF’s 12-month ROE of 23.1% is 78.6% higher than the industry average of 12.9%. PKG has a 12-month ROE of 25.9%, which is 100.8% higher than the industry average of 12.9%.
GEF has a B rating for value, which is in line with its lower-than-industry valuation ratios. WEF’s EV/Forward Sales of 0.83x is 40.2% lower than the industry average of 1.39x. PKG’s C rating for value is in line with its slightly better-than-industry valuation ratios. PKG’s EV/Forward Sales of 1.73x is 24.1% above the industry average of 1.39x.
Of the 22 A-rated shares Industrial – Packaging industry, GEF is ranked #2, while PKG is ranked #12.
Beyond what we stated above, our POWR rating system ranked GEF and PKG for sentiment, stability, growth and momentum. Get all WEF ratings here. Also, Click here to see additional POWR ratings for PKG.
Given the growth of the e-commerce industry and the growing interest in smart packaging solutions, the growing demand for packaging solutions is expected to benefit GEF and PKG. However, a relatively lower valuation makes GEF a better buy here.
Our research shows that the odds of success increase if one invests in stocks with an overall POWR rating of Buy or Strong Buy. Click here to access the highest rated stocks in the industrial packaging industry.
GEF shares were trading at $62.92 per share on Thursday afternoon, down $0.00 (0.00%). Year-to-date, GEF has gained 5.84%, versus a -19.55% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. After…