Westrock Co. (NYSE:WRK) was shaped in 2015 just after a merger concerning predecessor corporations MeadWestvaco and RockTenn. WestRock can make paper and cardboard packaging solutions, which are benefiting from the secular pattern towards more sustainable and a lot less polluting non-plastic packaging as effectively as the pattern to e-commerce.

Westrock is an field consolidator increasing with acquisitions. Due to the fact its have development, it has undertaken a extended listing of acquisitions and divestitures.

1131174988.jpg

The corporation operates in two segments – Corrugated Packaging and Shopper Packaging. Though principally concentrated in North America, it is increasing globally.

716596629.jpg

Due to the fact the development of the current corporation in 2015, the inventory is down from all over $60 to ~ $30 per share, when operating money move per share has grown by a compounded five% per year and Ebitda per share has grown by all over by a compounded seven% per year. This divergence concerning elementary functionality and inventory rate trajectory has built the inventory a powerful investment decision in my see, specially as I contemplate the stop of economic downturn and resumption of economic development in 2021-22.

7dde73a7c7ac23cbc5c0a707e0ab1f96.png

Stability sheet

The paper and packaging field is a money intense organization. At the moment, Westrock has a capitalization ratio (Net Running Money Capital Deployed) of 16%, which is pretty higher. The adhering to is a snapshot of WestRock’s stability sheet.

s_34C419C7583C71D4F0A986F4B6A2A8ECC84957[ Enlarge Graphic ]

Credit card debt quantities are average. The extended phrase debt / Ebita ratio is a lot less than three.five. Fascination Coverage (Running Money / Fascination Expense) is three.06. WestRock’s bonds are rated BBB and Baa2 by S&P and Moody’s, and they trade earlier mentioned par showing no symptoms of distress.

1925673115.jpg

1527642247.jpg

The corporation paid out ~$450 million in debt in the previous quarter. In accordance to my examination, the corporation does not have major debt maturities until finally March 2022.

939300129.jpg

Deleveraging should really lower the firm’s value of money further more. At the moment, I estimate the firm’s value of debt is all over four.five%.

Expansion

Westrock is increasing mostly by acquisition, funded by debt. In the previous five years, Westrock has grown Ebitda at a seventeen.one% Compounded Once-a-year Expansion Charge (CAGR) and Ebitda per share by a seven.two% CAGR (per share figures are lower due to share dilution). Overall Assets have grown by a thirteen.8% CAGR in this time period. I assume these are great quantities in a experienced field, showing that Westrock management is a great operator and is making value.

cb969ad34dc8b2cf3739ef2121e0d671.png

Dollars move

The adhering to chart reveals the a variety of components of operating money move above the previous five years. The organization creates substantial quantities of no cost money move with a latest money move yield (no cost money-move / market-cap) of twelve.five%.

1066602278.jpg

Dividend

Westrock not long ago minimize its dividend in May well 2020 by above 50% to focus on debt reduction. Its forward dividend yield is two.sixty four%. The dividend minimize was aimed at prioritizing up to $one billion in debt reduction above the next eighteen months.

Valuation

The adhering to valuation final results have been attained by utilizing the Gurufocus two-stage discounted money move calculator with the offered assumptions. Notice that even little changes in assumptions can outcome in substantial changes in valuation.

1920383262.jpg

The corporation also appears to be undervalued in conditions of the adhering to ratios. On the other hand, the corporation in its current kind is only five years previous and has not long gone through a economic downturn, so the facts under should really be interpreted with warning.

a77ec07a1915a202cc8d2258c0bf5e96.png

The adhering to desk compares Westrock with its peers in the packaging and connected field. As you can see, Westrock’s metrics review favorably.

Trade

Symbol

Company

Currency

Existing Rate

Marketplace

Business

Price ($M)

Rate-to-Running-

Dollars-Movement

EV-to-

EBITDA

EBITDA

margin

NYSE

OI

O-I Glass Inc

USD

eleven.75

Packaging & Containers

7375.231

one.95

23.49

five.00239

OTCPK

NDGPY

Nine Dragons Paper (Holdings) Ltd

USD

21.9

Forest Products and solutions

8055.699

three.16

9.sixty eight

10.66469

NYSE

WRK

WestRock Co

USD

30.29

Packaging & Containers

17643.09

three.five

six.09

16.30337

OTCPK

OJIPY

Oji Holdings Corp

USD

42.seventy three

Forest Products and solutions

10365.55

three.76

twelve.44

six.203998

NYSE

IP

Intercontinental Paper Co

USD

37.27

Packaging & Containers

29874.fifty seven

four.39

9.74

14.40519

NYSE

BERY

Berry World-wide Group Inc

USD

fifty four.35

Packaging & Containers

17528.81

four.56

8.forty three

seventeen.74744

NYSE

GEF

Greif Inc

USD

40.ninety two

Packaging & Containers

5083.483

five.31

8.05

thirteen.27754

NYSE

ARD

Ardagh Group SA

USD

15.two

Packaging & Containers

9318.672

five.five

twelve.36

eleven.53434

NYSE

GPK

Graphic Packaging Keeping Co

USD

14.82

Packaging & Containers

8076.502

five.72

10.15

twelve.6119

OTCPK

SMFKY

Smurfit Kappa Group PLC

USD

36.37

Packaging & Containers

12558.eighty four

five.72

seven.97

15.30884

Gray

DITHF

Smith (DS) PLC

USD

three.69

Packaging & Containers

7479.968

five.seventy seven

six.three

15.02565

OTCPK

SEOAY

Stora Enso Oyj

USD

thirteen.41

Forest Products and solutions

14607.eighty four

six.32

six.78

20.00219

OTCPK

MONDY

Mondi PLC

USD

40.eighteen

Forest Products and solutions

12608.thirteen

six.53

seven.four

21.38079

NAS

SLGN

Silgan Holdings Inc

USD

37.eighty three

Packaging & Containers

7501.572

seven.36

eleven.seven

14.00511

NYSE

PKG

Packaging Corp of America

USD

99.sixty seven

Packaging & Containers

11245.41

8.three

9.seventeen

eighteen.23836

NYSE

SON

Sonoco Products and solutions Co

USD

55.thirteen

Packaging & Containers

7201.33

8.35

10.sixty four

twelve.98411

OTCPK

UPMMY

UPM-Kymmene Oyj

USD

27.14

Forest Products and solutions

15221.fifty nine

8.88

8.29

16.75623

NYSE

CCK

Crown Holdings Inc

USD

76.36

Packaging & Containers

18741.seven

8.93

twelve.38

thirteen.37338

OTCPK

HOYFF

Huhtami Oyj

USD

40.one

Packaging & Containers

6033.262

9.29

10.8

14.0213

TSX

CCL.B

CCL Industries Inc

CAD

50.eighteen

Packaging & Containers

8179.759

eleven.thirteen

10.45

20.1304

NYSE

SEE

Sealed Air Corp

USD

41.16

Packaging & Containers

9997.744

eleven.52

eleven.26

eighteen.33144

NYSE

ATR

AptarGroup Inc

USD

118.49

Packaging & Containers

8744.057

15.09

16.51

eighteen.9637

OTCPK

HLMNY

Holmen AB

USD

24.45

Forest Products and solutions

8372.213

19.sixty two

four.fifty four

71.20014

NAS

REYN

Reynolds Shopper Products and solutions Inc

USD

33.45

Packaging & Containers

9117.482

22.53

thirteen.71

21.25959

NYSE

BLL

Ball Corp

USD

75.five

Packaging & Containers

31819.8

23.98

23.23

twelve.16912

NYSE

AMCR

Amcor PLC

USD

eleven.two

Packaging & Containers

24146.three

38.36

14.ninety two

thirteen.57009

Summary

Primarily based on these observations, I think Westrock is selling at a incredibly eye-catching rate offered its extended phrase probable. The corporation faces powerful economic headwinds due the pandemic induced economic downturn and will probable stuggle in the next twelve to eighteen months but should really advantage strongly when the restoration can take keep.

I have a target of $50 for the inventory to be obtained in 3 years. This, with each other with the dividend, should really provide me with a projected return of 24% per year.

Disclosure: I have WestRock inventory.

Go through more here:

Not a Premium Member of GuruFocus? Signal up for afree seven-working day trial here.