Containerboard Prices Set To Increase; Deutsche Boosts Rating On KapStone Paper, Packaging Corp Of America
Deutsche Bank upgraded KapStone Paper and Packaging Corp. (NYSE: KS) and Packaging Corp Of America (NYSE: PKG) to Buy from Hold on expectation of increase in containerboard prices on strong demand from ecommerce sector.
The brokerage said concerns over margin compression will lead to a strong resolve to push box prices higher. Deustche assumes $40 of the $50/ton hike is implemented and rolls through at the box level for all containerboard producers in 2017 and 2018.
Commenting on the KapStone upgrade, analyst Debbie Jones said "The outlook for KS has significantly improved over the last few months. Not only are containerboard domestic prices apt to increase, but export prices and kraft paper prices appear to be stabilizing."
Jones raised her fourth quarter EBITDA estimate to $105 million from $103 million with EPS going to $0.33 from $0.32. The analyst also upped her 2017 EBITDA view to $460 million from $420 million with EPS estimate being increased to $1.62 from $1.35.
For PKG, the analyst believes the company has several levers to improve volumes and margins over the next two years apart from containerboard price increases. The levers include the integration of TimBar, the continued rampup of DeRidder's PM 3 and a healthy balance sheet and potential M&A opportunities.
"As a ~10% market share player in containerboard & corrugated packaging, PKG should continue to enjoy "freerider" status while still maintaining a system large enough to service national accounts. We believe the current share price offers an attractive entry point. Thus, our rating is Buy," Jones wrote in a note.
Jones lifted her third quarter EBITDA view to $306 million from $302 million with EPS view being raised to $1.33 from $1.32. The analyst also increased her 2017 EBITDA to $1.32 billion from $1.15 billion and EPS forecast to $5.93 from $4.95.
Jones also raised the price target for KS to $23 from $15 and PKG to $90 from $77.
At time of writing, shares of KapStone were up 3.38 percent to $19.86, while PKG rose 2.33 percent to $82.52.
Latest Ratings for KS
|Nov 2016||Wells Fargo||Downgrades||Outperform||Market Perform|
|Oct 2016||Bank of America||Upgrades||Neutral||Buy|
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