5 Reasons WestRock Was Added To Citi's Focus List

• Shares of WestRock Co. WRK have declined almost 11 percent since August 14, significantly underperforming the S&P.
• Citi’s Anthony Pettinari has reiterated a Buy rating and price target of $73 on WestRock, while adding the stock to the Citi Focus List.
• Despite the recent underperformance of the stock, Pettinari believes that the industry fundamentals have been incrementally improving.

According to the Citi report, “In boxboard WRK’s $50/ton CRB price hike has gained early traction amid solid market demand, while recent consolidation at the tail-end of containerboard should help support a balanced market through 2016.”

Pettinari believes that risks associated with weaker EM demand and a strong U.S. dollar are being balanced by the deflationary environment for raw materials. Investors are also likely to “find comfort” in the company’s underleveraged balanced sheet, given the weaker macro environment.

Pettinari expects one of the key catalysts for the stock to be the Ingevity spinoff scheduled for 1Q16. Other catalysts include the $2.3 billion share buyback initiative, as WestRock “takes advantage of the recent market weakness.”

Updates regarding the $1 billion performance improvement capture, as well as increased clarity, with F4Q being the first time quarter for which the combined entity will release its results.

“Most investor pushback we’ve received has centered around potential containerboard price erosion,” Pettinari said, while adding that the fears were overdone, given that Citi’s analysis shows that op rates holding at 94 percent through 2016 and “no major capacity adds following Pratt’s Valparaiso mill in Sept.”