Geopolitical issues, rising pulp prices, high raw material prices, and supply chain snarls were some of the challenges faced by the paper and packaging industry. However, the rising product demand for packaging across the globe from industries including food and beverage, construction, electrical and electronics, retail, and manufacturing is anticipated to boost the growth of the paper and packaging industry.
To that end, investors could look to invest in paper stocks Klabin S.A. (KLBAY), International Paper Company (IP), and Sylvamo Corporation (SLVM). These stocks are “Buy Rated” in our POWR Ratings system.
With the world becoming increasingly digital, the next phase of growth for the paper industry will likely be driven by sustainable paper packaging solutions, environment-friendly coverings, and secure and protective packaging. The booming e-commerce industry is also expected to drive the demand for paper packaging in the long term.
With governments implementing regulations to reduce plastic packaging usage, there is a worldwide shift towards paper packaging. Also, the cost-effectiveness of paper packaging makes it more suitable for businesses looking for cheaper alternatives. According to Statista, the global pulp and paper market is projected to reach $373 billion by 2029.
Given these factors, it could be wise for investors to invest in “Buy Rated” fundamentally strong paper stocks KLBAY, IP, and SLVM.
Klabin S.A. (KLBAY)
Headquartered in São Paulo, Brazil, KLBAY operates in the paper and pulp industry internationally. The company engages in the planting and forestry operations of pine and eucalyptus; and forestry management business.
In terms of forward non-GAAP P/E, KLBAY’s 5.66x is 58.4% lower than the 13.60x industry average. Its 6.20x forward EV/EBITDA is 16.3% lower than the 7.40x industry average. Likewise, its 0.97x forward Price/Sales is 10.9% lower than the 1.09x industry average.
For the fiscal year ended December 31, 2022, KLBAY’s net revenue increased 22% year-over-year to R$20 billion ($3.87 billion). Additionally, its adjusted EBITDA came in at R$7.93 billion ($1.54 billion), representing a 15% increase from the prior-year quarter. Also, its net income increased 38% year-over-year to R$4.69 billion ($909.45 million).
Analysts expect KLBAY’s revenue for the quarter ended March 31, 2023, to increase 8% year-over-year to $961.81 million. Over the past six months, the stock has gained 9.9% to close the last trading session at $7.25.
KLBAY’s strong fundamentals are reflected in POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Industrial - Paper industry, it is ranked first out of 11 stocks. It has an A grade for Stability and a B for Value and Quality. We have also given KLBAY grades for Growth, Momentum, and Sentiment. Get all KLBAY ratings here.
International Paper Company (IP)
IP produces renewable fiber-based packaging and pulp products in North America, Latin America, Europe, and North Africa. It operates through Industrial Packaging and Global Cellulose Fibers segment.
On January 24, 2023, IP announced that it had agreed to sell its 50% interest in Ilim SA, the holding company for its Ilim joint venture (JV), to its JV partners for a $484 million equity value.
Ilim, a 50/50 joint venture between IP and Ilim Holding, is one of the largest integrated manufacturers of pulp and paper in Russia. The company is also the largest foreign-domestic alliance in the country’s forestry products sector.
In terms of forward non-GAAP P/E, IP’s 12.69x is 6.7% lower than the 13.60x industry average. Its 0.86x forward EV/Sales is 42.1% lower than the 1.49x industry average. Likewise, its 6.82x forward EV/EBITDA is 7.9% lower than the 7.40x industry average.
For the fiscal fourth quarter that ended December 31, 2022, IP’s net sales increased 1% year-over-year to $5.13 billion. The company’s adjusted operating earnings increased 31.5% year-over-year to $309 million. Its adjusted operating EPS came in at $0.87, representing a 42.6% increase from the prior-year quarter.
IP’s EPS and revenue for the fiscal year 2024 are expected to increase 4.6% and 0.2% year-over-year to $2.89 and $20.31 billion, respectively. It 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 gained 9.3% to close the last trading session at $35.07.
IP’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy.
It is ranked #4 in the same industry. In addition, it has a B grade for Value and Quality. To see the other ratings of IP for Growth, Momentum, Stability, and Sentiment, click here.
Sylvamo Corporation (SLVM)
SLVM produces and markets uncoated freesheet, cut size, offset paper, and pulp in Latin America, Europe, and North America. The company operates through Europe, Latin America, and North America segments.
On January 2, 2023, SLVM closed an agreement acquiring Stora Enso’s uncoated freesheet paper mill in Nymölla, Sweden. Its chairman and CEO, Jean-Michel Ribiéras, believes that acquiring the Nymölla mill would strengthen SLVM’s uncoated freesheet product mix and enable the company to serve customers across Europe around the world more effectively.
In terms of forward non-GAAP P/E, SLVM’s 4.90x is 64% lower than the 13.60x industry average. Its 3.31x forward EV/EBITDA is 55.3% lower than the 7.40x industry average. Likewise, its 0.44x forward Price/Sales is 59.6% lower than the 1.09x industry average.
For the fiscal year that ended December 31, 2022, SLVM’s net sales increased 28.3% year-over-year to $3.63 billion. Its adjusted operating earnings increased 73.1% year-over-year to $348 million. The company’s adjusted EBITDA increased 62% from the prior-year quarter to $721 million. In addition, its adjusted operating EPS came in at $7.84, representing an increase of 71.6% year-over-year.
Street expects SLVM’s EPS and revenue for the quarter ending March 31, 2023, to increase 26.4% and 8.5% year-over-year to $2.49 and $1.06 billion, respectively. Over the past nine months, the stock has gained 43.3% to close the last trading session at $45.90.
SLVM’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy.
It is ranked #2 in the Industrial - Paper industry. It has a B grade for Growth and Quality. Click here to access the additional ratings for SLVM for Value, Momentum, Stability, and Sentiment.
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KLBAY shares were unchanged in premarket trading Thursday. Year-to-date, KLBAY has declined -2.72%, versus a 6.04% 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.
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