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JPMorgan has started coverage of Packaging Corp of America, or PKG, with an Overweight rating and a price target of $242. The firm believes PKG is best positioned to benefit as the U.S. corrugated container industry changes.
Competitors like International Paper and Smurfit WestRock are now focusing more on profits than volumes. That means they could close mills and cut supply. With operating rates already close to 95%, JPMorgan thinks the market will get tighter even though demand is not back to old highs yet.
PKG is the third-largest box maker in the country. JPMorgan says it scores highly on most operating measures and is in a strong spot to win market share.
The company’s balance sheet also looks solid. PKG recently bought Greif for $1.8 billion. JPMorgan expects that deal will boost earnings per share by about 11%. By 2026, they see PKG’s leverage dropping from about 2 times EBITDA to 1.3 times. That could open the door for share buybacks.
JPMorgan estimates the company could run a $500 million annual buyback program, equal to around 2.5% of its market value, supported by its cash flow.
The firm also noted Smurfit WestRock as a top pick. They see it as well exposed to U.S. market trends, with room for $800 million to $1.2 billion in extra earnings, and a lower valuation than International Paper.