Packaging Corporation Of America: Citigroup Maintains Neutral, Raises PT to $214 from $197.

Packaging Corporation Of America: Citigroup Maintains Neutral, Raises PT to $214 from $197.

Citigroup has maintained a Neutral rating on Packaging Corporation of America (PKG) while raising its price target from $197 to $214, ahead of the company’s second-quarter earnings report. The investment bank expects the company’s second-quarter EBITDA to increase by 11% year-over-year to $447 million, slightly above consensus estimates of $446 million [1]. This growth is anticipated to be driven by modest volume increases and high-single-digit percentage price improvements in the Packaging segment, with the Paper segment remaining flat to slightly down sequentially.

Packaging Corp. of America reported a significant increase in earnings for the second quarter, with its bottom line totaling $241.5 million, or $2.67 per share, compared to $198.9 million, or $2.21 per share, last year. Excluding items, adjusted earnings were $224.2 million or $2.48 per share. Revenue for the period rose 4.6% to $2.171 billion from $2.075 billion last year [2].

Citigroup’s Neutral rating is 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. The company has maintained dividend payments for 23 consecutive years, demonstrating strong shareholder commitment. Additionally, Packaging Corp. of America recently announced a definitive agreement to acquire Greif (NYSE:GEF) Inc.’s containerboard business for $1.8 billion in cash [1].

The 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 [1].

Citi analysts have maintained a Neutral rating on Packaging Corp., 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 driven by balanced supply and demand conditions and disciplined industry management. Additionally, Cascades Inc (TSX:CAS). announced plans to close its Niagara Falls facility, seen as positive for the sector by Citi analysts [1].

References:
[1] https://www.investing.com/news/analyst-ratings/citi-maintains-neutral-rating-on-packaging-corp-of-america-stock-ahead-of-earnings-93CH-4143874
[2] https://www.nasdaq.com/articles/packaging-corporation-america-profit-climbs-q2