The growth of the paper industry is being fueled by rising consumer packaging demand on account of growing e-commerce trends and online sales of pulp and paper products. Furthermore, an increasing awareness of environmental issues, such as biodegradability, global warming, and health issues generated by plastic packaging materials, is expected to boost the paper market’s growth significantly.
The increased use of hygiene and sanitary products, such as tissue paper, napkins, and paper towels, is also driving the paper products market’s growth. The global paper products market is expected to grow at a0.32% CAGR through 2028.
Given this promising outlook, we think it could be worth investing in fundamentally sound paper stocks Suzano S.A. (SUZ) and Mercer International Inc. (MERC). These stocks have outperformed the broader market year-to-date and still hold significant upside potential.
Suzano S.A. (SUZ)
Headquartered in Salvador, Brazil, SUZ produces and sells eucalyptus pulp and paper products in Brazil and internationally. Pulp and Paper are the company’s two operational segments. SUZ offers coated and uncoated printing and writing papers, paperboards, tissue papers, market and fluff pulps, and lignin and its byproducts.
SUZ's net revenue has increased 43.1% year-over-year to R$11.47 billion ($2.41 billion) during the fourth quarter, ending Dec. 31, 2021. Its net income amounted to R$2.31 billion ($485.54 million), while its adjusted EBITDA increased 60.3% from its year-ago value to R$6.36 billion ($1.33 billion). Its cash and cash equivalents stood at R$13.59 billion ($2.85 billion) for its fiscal year, ending Dec. 31, 2021.
Analysts expect SUZ's revenue to increase 27.5% year-over-year to $2.14 billion in the first quarter, ending March 31, 2022. The stock has gained 11% in price year-to-date and 19.9% over the past six months.
SUZ's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SUZ is also rated a A grade for Sentiment and B for Growth and Quality. Within the A-rated Industrial - Paper industry, it is ranked #5 of 15 stocks.
To see additional POWR Ratings for Value, Stability, and Momentum for SUZ, click here.
Mercer International Inc. (MERC)
Headquartered in Vancouver, Canada, MERC and its subsidiaries manufacture and sell northern bleached softwood kraft (NBSK) pulp internationally. The company has two operational segments: Pulp and Wood Products. It also generates and sells green energy produced from biomass cogeneration power plants to third-party utilities.
During the fourth quarter, ending Dec. 31, 2021, MERC's total revenue increased 30.3% year-over-year to $518.96 million. Its operating income grew 732.24% from its year-ago value to $129.96 million, while its net income amounted to $74.52 million, compared to a $12.98 million net loss in the prior-year quarter. The company's EPS came in at $1.12 compared to a $0.20 loss per share in the prior-year quarter.
The consensus EPS estimate for the first quarter, ending March 31, 2022, represents 137.5% year-over-year growth to $0.97. Analysts expect MERC’s revenue to increase 27.6% year-over-year to $526.42 million for the first-quarter, ending March 31, 2022. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The company shares have surged 17.4% in price year-to-date and 21.4% over the past six months.
MERC's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Growth and a B for Sentiment. Within the Industrial - Paper industry, it is ranked #4.
In total, we rate MERC on eight distinct levels. Beyond what we've stated above, we have also given MERC grades for Quality, Value, Momentum, and Stability. Get all the MERC ratings here.
SUZ shares were trading at $11.83 per share on Thursday afternoon, down $0.16 (-1.33%). Year-to-date, SUZ has gained 10.73%, versus a -3.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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