Baird says buy Graphic Packaging Holding Company GPK shares on weakness following the reported paperboard price decline as the brokerage believes that paperboard prices should bottom at current levels amid modest inflationary pressure.
After the close on Friday, Pulp & Paper Week noted that CRB paperboard prices declined $20/ton in September to $1,080/ton on weak end-market demand and heightened competition. GPK produces two grades of paperboard, including CUK and CRB.
On an EBITDA basis, Baird estimates a $10 million annual impact from the September CRB decline, and sees $828 million of EBITDA for FY17.
"Regardless, noting that both containerboard and URB (lower grade of paperboard) producers have announced price increases of ~$50/ton effective early October, our view is that CRB producers could eventually follow given increases in OCC through the course of the year," analyst Ghansham Panjabi wrote in a note.
Panjabi reiterated his Outperform rating and $16 price target on the stock, which is trading at a discount to its packaging peer group, with an attractive 9 percent free cash flow yield.
At time of writing, shares of Graphic Packaging were flat at $13.90.
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