Citi maintains Neutral rating on Packaging Corp. of America stock ahead of earnings

Investing.com - Citi has reiterated its Neutral rating and $197.00 price target on Packaging Corp . of America (NYSE:PKG) ahead of the company’s second-quarter earnings report scheduled for Wednesday after market close. According to InvestingPro data, five analysts have recently revised their earnings estimates upward, and the company maintains a GOOD financial health score, suggesting strong fundamentals.

The investment bank forecasts second-quarter EBITDA to increase 11% year-over-year to $447 million, slightly above consensus estimates of $446 million. This growth is expected to be driven by modest volume increases and high-single-digit percentage price improvements year-over-year in the Packaging segment, while the Paper segment could remain flat to slightly down sequentially. The company’s strong revenue growth of 9.47% over the last twelve months and impressive current ratio of 3.28x demonstrate solid operational performance.

Citi anticipates industry-wide box shipments to be flat to low-single-digit percentage down year-over-year, with PKG likely continuing to outperform the broader market. The company reported April billings up 4.1% year-over-year despite facing tough comparisons.

For the third quarter, Citi expects PKG could guide to approximately $2.95 earnings per share, supported by modestly positive volumes and continued year-over-year price momentum. The company pulled forward maintenance into the second quarter during a period of slower demand.

Citi maintains its Neutral stance based on PKG’s valuation of 10.3x next-twelve-months EBITDA versus its 10-year average of 9.1x, and potential narrowing of margin and return gaps compared to competitors. Investors will likely seek details on PKG’s $1.2 billion GEF acquisition, which is expected to generate $60 million in cost synergies within two years of closing. InvestingPro analysis shows the company has maintained dividend payments for 23 consecutive years, demonstrating strong shareholder commitment. Get access to more detailed financial analysis and 8 additional ProTips with an InvestingPro subscription.

In other recent news, Packaging Corporation of America announced a definitive agreement to acquire Greif (NYSE:GEF), Inc.’s containerboard business for $1.8 billion in cash. This acquisition includes two containerboard mills and eight sheet feeder and corrugated plants, adding approximately 800,000 tons of production capacity. The Greif business generated $1.2 billion in sales and $212 million in EBITDA over the past year. Packaging Corp. expects to achieve $60 million in pre-tax synergies within two years, with plans to finance the transaction through $1.5 billion in new debt and cash on hand. The acquisition is anticipated to close by the end of the third quarter of 2025, pending regulatory approvals.

Citi analysts have maintained a Neutral rating on Packaging Corp. while noting that the acquisition is a "modest positive" for the company. Truist Securities raised its price target for Packaging Corp. to $239.00, citing a potential "golden age" for the North American containerboard market. This optimism is driven by balanced supply and demand conditions and disciplined industry management. Additionally, Cascades Inc (TSX:CAS). announced plans to close its Niagara Falls facility, a move seen as positive for the sector by Citi analysts. This closure is part of a broader industry trend, with several other major capacity shutdowns in North America this year.

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