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.
The corporation operates in two segments – Corrugated Packaging and Shopper Packaging. Though principally concentrated in North America, it is increasing globally.
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.
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.
[ 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.
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.
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.
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%.
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 $one billion in debt reduction above the next eighteen months.
Valuation
The adhering to valuation final results have been attained by utilizing the Gurufocus two-stage discounted money move calculator with the offered assumptions. Notice that even little changes in assumptions can outcome in substantial changes in valuation.
The corporation also appears to be undervalued in conditions of the adhering to ratios. On the other hand, the corporation in its current kind is only five years previous and has not long gone through a economic downturn, so the facts under should really be interpreted with warning.
The adhering to desk compares Westrock with its peers in the packaging and connected field. As you can see, Westrock’s metrics review favorably.
|
Trade |
Symbol |
Company |
Currency |
Existing Rate |
Marketplace |
Business Price ($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.
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