KapStone Paper Hits 52-Week High - Analyst Blog

Shares of industrial goods manufacturer KapStone Paper and Packaging Corporation KS scaled a 52-week high of $34.43 on Jun 23, before closing the trading session at $32.97 for a healthy one-year return of 69.7%. Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock has the wherewithal to continue its growth curve. The stock is currently trading at a forward P/E of 14.9x and has long-term earnings growth expectation of 5.0%.

Growth Drivers

KapStone Paper has been on the uptrend since it reported record first-quarter 2014 results despite inclement weather conditions. Consolidated net sales improved 72% year over year to $549 million, buoyed by the Longview acquisition that contributed $227 million of incremental revenues. Earnings per share also mirrored the top-line performance and increased 74% year over year to 33 cents.

In order to further add more fuel to the growth engine, KapStone Paper has taken some key steps that are likely to boost its operating metrics. The company has increased the price of its kraft paper by $50 per ton and is expected to rake in approximately $30 million of annualized benefits upon full implementation. KapStone Paper is the largest producer of kraft paper in the U.S., which is utilized for making bags for agricultural products, pet food, baking products, cement and chemicals, and grocery bags. The company has also upgraded two major paper machines for higher production yields within two years.

Furthermore, in order to reduce operating costs, the company has announced a voluntary separation plan at legacy mills, which is likely to reduce annual personnel costs by up to $4 million. At the same time, KapStone Paper has reduced its interest rates by 50 basis points on term loans and its revolving credit facility, thereby increasing liquidity to capitalize on potential acquisition opportunities.

Other Stocks to Consider

Stocks in the industry that warrant a look include Limoneira Company LMNR, Adecoagro S.A. AGRO and JBS S.A. (JBSAY), each carrying a Zacks Rank #2 (Buy).