The industrial packaging industry has faced the challenges of high inflation, rising labor and raw material costs, declining consumer spending, and supply chain challenges over the past year.
As inflation eases and job growth remains strong, consumer spending is expected to rise. Amid this backdrop, investors could capitalize on the upside potential of fundamentally strong industrial packaging stocks Veritiv Corporation (VRTV) and Karat Packaging Inc. (KRT).
Thanks to rising globalization and international trade, there is an increased demand for product safety and robust packaging options to avoid damage occurred by environmental factors and transportation.
Moreover, the growth of e-commerce and the focus on sustainable packaging are expected to be significant drivers of the industrial packaging industry. With government regulations limiting the use of plastic, the industrial packaging industry is coming up with alternative packaging solutions.
The industrial packaging market is expected to reach $76.08 billion by 2027, growing at a CAGR of 5%.
Amid this backdrop, investors could be wise to pick up fundamentally strong stocks VRTV and KRT.
Veritiv Corporation (VRTV)
VRTV operates as a business-to-business provider of value-added packaging products and services, facility solutions, and print based products and services worldwide. It operates through Packaging, Facility Solutions, and Print segments.
In terms of forward GAAP P/E, VRTV’s 5.85x is 68.6% lower than the 18.59x industry average. Its 0.31x forward EV/Sales is 80.3% lower than the 1.58x industry average. Likewise, its 5.71x forward EV/EBIT is 61.3% lower than the 14.75x industry average.
VRTV’s operating income increased 26.5% year-over-year to $101.70 million for the fourth quarter that ended December 31, 2022. The company’s net income increased 25.8% from the prior-year quarter to $71.60 million. Its adjusted EBITDA increased 4.2% year-over-year to $120.80 million, while its EPS came in at $5.20, representing a 41.7% increase from the prior-year period.
VRTV has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has fallen 2.4% to close the last trading session at $112. Wall Street analysts expect the stock to hit $158 in the near term, indicating a potential upside of 44.2%.
VRTV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 out of 22 stocks in the B-rated Industrial - Packaging industry. It has an A grade for Value and a B for Momentum and Quality. We have also given VRTV grades for Growth, Stability, and Sentiment. Get all VRTV ratings here.
Karat Packaging Inc. (KRT)
KRT manufactures and distributes single-use disposable products in plastic, paper, biopolymer-based, and other compostable forms used in various restaurant and foodservice settings. It provides food and take-out containers, bags, tableware, equipment, gloves, and other products under the Karat Earth brand.
In terms of forward non-GAAP P/E, KRT’s 9.83x is 41.8% lower than the 16.88x industry average. Its 8.43x forward EV/EBIT is 42.8% lower than the 14.75x industry average. Likewise, its 0.73x forward EV/Sales is 53.8% lower than the 1.58x industry average.
For the fiscal fourth quarter that ended December 31, 2022, KRT’s net sales increased 1.5% year-over-year to $92.67 million. Its gross profit increased 4.9% year-over-year to $29.67 million. Its adjusted EPS came in at $0.30.
Analysts expect KRT’s EPS and revenue for the quarter ending June 30, 2023, to increase 30.4% and 5.7% year-over-year to $0.44 and $121.42 million, respectively. Over the past month, the stock has gained 5.2% to close the last trading session at $14. Wall Street analysts expect the stock to hit $22 in the near term, indicating a potential upside of 58.2%.
KRT’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #2 in the same industry. The stock has a B grade for Momentum, Stability, Sentiment, and Quality. Click here to access the POWR Ratings of KRT for Growth and Value.
The Bear Market is NOT Over…
That is why you need to discover this timely presentation with a trading plan and top picks from 40 year investment veteran Steve Reitmeister:
REVISED: 2023 Stock Market Outlook >
VRTV shares were trading at $110.30 per share on Tuesday afternoon, down $3.72 (-3.26%). Year-to-date, VRTV has declined -8.93%, versus a 7.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
2 Industrial Packaging Stocks With the Most Upside Potential in May 2023 StockNews.com
