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3 Paper & Related Products Stocks to Watch From a Promising Industry
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The Zacks Paper and Related Products industry is set to benefit from increased packaging demand from rising e-commerce activities. Sustained demand from consumer-oriented sectors, such as food, beverages and healthcare, lends further support. The industry's growth is propelled by the escalating consumer inclination toward paper as an environmentally friendly packaging choice amid rising environmental awareness.
Key players, such as Stora Enso Oyj (SEOAY - Free Report) , Sylvamo (SLVM - Free Report) and Rayonier Advanced Materials (RYAM - Free Report) , are well-positioned to capitalize on the above-mentioned trends as they continue to position themselves favorably in the evolving market landscape.
About the Industry
The Zacks Paper and Related Products industry comprises companies that manufacture and sell paper and paper products. The industry is highly diversified in terms of products ranging from graphic paper and packaging paper to absorbent hygiene products. Graphic papers, which include printing and writing papers, and newsprint, are utilized for communication purposes. The industry provides packaging solutions for liquid, food, pharmaceutical, beauty, household, commercial and industrial products. It also produces fluff and specialty pulps utilized in absorbent hygiene products, tissues and paper products. The industry caters to a wide array of sectors, including food and beverage, farming, home and personal care, health, retail, e-commerce, and transport. Industry players meet customers’ shipping, storage and display requirements with sustainable solutions.
Major Trends Shaping the Future of the Paper & Related Products Industry
E-commerce & Consumer Products to Support Packaging Demand: The industry’s significant exposure to consumer-focused markets, such as food, beverages and healthcare, ensures steady earnings growth. With the rise of e-commerce, packaging has gained the utmost importance, as it helps maintain the integrity of the product and withstand the complexities of delivery. According to Statista, global e-commerce sales were $5.8 trillion in 2023, and this figure is expected to reach $8 trillion by 2027, seeing a CAGR of 8.4%. This presents a major growth opportunity for the Paper and Related Products industry. In 2022, e-commerce sales accounted for nearly 19% of retail sales worldwide, and this share is expected to increase to 25% by 2027. The United States is expected to lead the retail e-commerce development, witnessing a CAGR of 11.82% over 2024-2028. The current valuation of the U.S. e-commerce market is $843 billion, and it is anticipated to surpass the $1-trillion mark in 2026. India and Mexico are expected to follow suit, seeing a CAGR of 11.79% and 11.71%, respectively.
Increased M&A Activities to Transform the Paper & Packaging Landscape: Recently, there has been a surge in merger and acquisition activities within the industry, as companies position themselves to seize growth opportunities, and enhance their packaging and sustainability offerings, among other strategic objectives. Smurfit Westrock Plc (SW - Free Report) was formed by the merger of two major paper and packaging industry players — Smurfit Kappa and WestRock — on Jul 5, 2024. Smurfit Westrock has an unmatched geographic reach spanning 42 countries. Given this scale and equipped with the two companies’ highly complementary portfolios and innovative sustainability capabilities, Smurfit Westrock is likely to be the preferred packaging partner for companies and customers across the globe. International Paper (IP - Free Report) has entered an agreement to acquire the entire issued share capital of DS Smith. This marks a strategic move to strengthen International Paper’s corrugated packaging business in Europe and prioritize sustainable packaging.
Sustainability Acts as the Key Driver: Increasing demand for sustainable packaging options and eco-friendly packaging solutions will support the paper market in the days ahead. The paper industry has already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods. Investment in breakthrough technologies will propel the demand for high-quality paper products.
Pricing Actions & Improving Efficiency to Offset Cost Inflation: The industry is witnessing rising costs of transportation, chemical and fuel, and supply-chain headwinds. Therefore, industry players are increasingly focusing on pricing actions and cost reduction, and resorting to automation in manufacturing to boost productivity and efficiency.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Paper and Related Products industry is a 12-stock group within the broader Basic Materials sector. The industry currently carries a Zacks Industry Rank #101, which places it in the top 40% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few Paper and Related Products stocks that investors can keep an eye on, it is worth looking at the industry’s stock-market performance and its valuation picture.
Industry Versus S&P 500 & Sector
The Paper and Related Products industry has outperformed the sector but lagged the S&P 500 over the past year. The stocks in this industry have gained 20.8%, whereas the Basic Materials sector has moved down 1.6%. The S&P 500 has grown 21% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly-used multiple for valuing Paper and Related Products companies, we see that the industry is currently trading at 9.8X compared with the S&P 500’s 19.69X and the Basic Material sector’s trailing 12-month EV/EBITDA of 11.72X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry traded as high as 12.38X and as low as 4.07X, the median being 7.27X.
3 Paper & Related Products Stocks to Watch
Sylvamo: Stronger order books, and higher pulp and paper prices will aid its top-line growth. The company has initiated a cost-reduction program called Project Horizon, which is focused on streamlining its organization and cost structures in an effort to make a leaner, stronger company. SLVM is on track to realize savings of at least $110 million by the end of 2024. Around $80 million of the target will come from operational improvements in its mills and supply chains, and the balance from the reduction in selling and administrative expenses. The company continues to lower its debt levels and maintains a strong financial position that enables it to invest in its business. It has a pipeline of more than $200 million of high-return capital projects, which will boost its earnings and cash flow profile. Sylvamo recently raised its quarterly dividend by 50% to 45 cents per share, the third increase in the last two years. The company’s shares have gained 52% in the past year.
Earnings estimates for Sylvamo’s fiscal 2024 have moved 2% north over the past 30 days. The estimate indicates year-over-year growth of 6%. Memphis, TN-based SLVM has a trailing four-quarter earnings surprise of 23.2%, on average. The company has a long-term estimated earnings growth of around 30% and a Zacks Rank #2 (Buy) at present.
Stora Enso: The company’s ongoing profitability and cash flow improvement initiatives, coupled with favorable market conditions in some segments, have led to an improved earnings trend for three consecutive quarters. SEOAY also strengthened its leverage ratio despite record-high growth investments. The company has set a profit improvement target of €120 million from its profit improvement program that was initiated in February 2024. The consumer board investment at the Oulu site in Finland is progressing on schedule with production expected to start in the first half of 2025. It will support SEOAY’s long-term strategy to build market share in renewable and circular packaging solutions, which matter the most to its customers. Stora Enso plans to improve its cash flow through working capital management and intends to lower debt levels. SEOAY shares have gained 4.8% in the past year.
The Zacks Consensus Estimate for 2024 for the Helsinki, Finland-based company has moved up 21.3% in the past 30 days. The consensus estimate for Stora Enso indicates year-over-year growth of 173%. The company has a trailing four-quarter earnings surprise of 47.8%, on average. SEOAY currently has a Zacks Rank #3 (Hold) and a long-term estimated earnings growth of 51.65%.
Price & Consensus: SEOAY
Rayonier Advanced Materials: In the High Purity Cellulose segment, average sales prices for cellulose specialties are expected to increase going forward as the company prioritizes value over volume. Sales volumes will gain from the closure of a competitor’s plant and a modest increase in ether sales. The company’s bioethanol facility in Tartas, France, became operational in the first quarter of 2024 and is expected to deliver $3-$4 million of EBITDA in 2024, growing to $8-$10 million beginning in 2025. The Paperboard segment is expected to benefit from stable prices and higher volumes, reflecting customer demand. In October 2023, the company announced that it was exploring the potential sale of its Paperboard and High-Yield Pulp assets located at its Temiscaming site. This will align its portfolio with its long-term growth strategy, and provide flexibility to pay down debt, reduce leverage and minimize earnings volatility. The indefinite suspension of operations at the Temiscaming High Purity Cellulose plant, announced on Apr 29, 2024, is anticipated to mitigate the plant’s ongoing operating losses and high capital needs, thereby improving RYAM’s consolidated free cash flow. It is focused on lowering debt and investing in high-return projects and acquisitions to drive growth. RYAM shares have appreciated 48.8% over the past 12 months.
Earnings estimates for fiscal 2024 for Jacksonville, FL-based Rayonier Advanced Materials indicate year-over-year growth of 58%. Estimates have been unchanged over the past 30 days. RYAM carries a Zacks Rank #3 at present.
Price & Consensus: RYAM
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3 Paper & Related Products Stocks to Watch From a Promising Industry
The Zacks Paper and Related Products industry is set to benefit from increased packaging demand from rising e-commerce activities. Sustained demand from consumer-oriented sectors, such as food, beverages and healthcare, lends further support. The industry's growth is propelled by the escalating consumer inclination toward paper as an environmentally friendly packaging choice amid rising environmental awareness.
Key players, such as Stora Enso Oyj (SEOAY - Free Report) , Sylvamo (SLVM - Free Report) and Rayonier Advanced Materials (RYAM - Free Report) , are well-positioned to capitalize on the above-mentioned trends as they continue to position themselves favorably in the evolving market landscape.
About the Industry
The Zacks Paper and Related Products industry comprises companies that manufacture and sell paper and paper products. The industry is highly diversified in terms of products ranging from graphic paper and packaging paper to absorbent hygiene products. Graphic papers, which include printing and writing papers, and newsprint, are utilized for communication purposes. The industry provides packaging solutions for liquid, food, pharmaceutical, beauty, household, commercial and industrial products. It also produces fluff and specialty pulps utilized in absorbent hygiene products, tissues and paper products. The industry caters to a wide array of sectors, including food and beverage, farming, home and personal care, health, retail, e-commerce, and transport. Industry players meet customers’ shipping, storage and display requirements with sustainable solutions.
Major Trends Shaping the Future of the Paper & Related Products Industry
E-commerce & Consumer Products to Support Packaging Demand: The industry’s significant exposure to consumer-focused markets, such as food, beverages and healthcare, ensures steady earnings growth. With the rise of e-commerce, packaging has gained the utmost importance, as it helps maintain the integrity of the product and withstand the complexities of delivery. According to Statista, global e-commerce sales were $5.8 trillion in 2023, and this figure is expected to reach $8 trillion by 2027, seeing a CAGR of 8.4%. This presents a major growth opportunity for the Paper and Related Products industry. In 2022, e-commerce sales accounted for nearly 19% of retail sales worldwide, and this share is expected to increase to 25% by 2027. The United States is expected to lead the retail e-commerce development, witnessing a CAGR of 11.82% over 2024-2028. The current valuation of the U.S. e-commerce market is $843 billion, and it is anticipated to surpass the $1-trillion mark in 2026. India and Mexico are expected to follow suit, seeing a CAGR of 11.79% and 11.71%, respectively.
Increased M&A Activities to Transform the Paper & Packaging Landscape: Recently, there has been a surge in merger and acquisition activities within the industry, as companies position themselves to seize growth opportunities, and enhance their packaging and sustainability offerings, among other strategic objectives. Smurfit Westrock Plc (SW - Free Report) was formed by the merger of two major paper and packaging industry players — Smurfit Kappa and WestRock — on Jul 5, 2024. Smurfit Westrock has an unmatched geographic reach spanning 42 countries. Given this scale and equipped with the two companies’ highly complementary portfolios and innovative sustainability capabilities, Smurfit Westrock is likely to be the preferred packaging partner for companies and customers across the globe. International Paper (IP - Free Report) has entered an agreement to acquire the entire issued share capital of DS Smith. This marks a strategic move to strengthen International Paper’s corrugated packaging business in Europe and prioritize sustainable packaging.
Sustainability Acts as the Key Driver: Increasing demand for sustainable packaging options and eco-friendly packaging solutions will support the paper market in the days ahead. The paper industry has already begun incorporating recycled content into production methods. By maximizing recycling, the industry will be able to implement environmentally and economically sustainable production methods. Investment in breakthrough technologies will propel the demand for high-quality paper products.
Pricing Actions & Improving Efficiency to Offset Cost Inflation: The industry is witnessing rising costs of transportation, chemical and fuel, and supply-chain headwinds. Therefore, industry players are increasingly focusing on pricing actions and cost reduction, and resorting to automation in manufacturing to boost productivity and efficiency.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Paper and Related Products industry is a 12-stock group within the broader Basic Materials sector. The industry currently carries a Zacks Industry Rank #101, which places it in the top 40% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bullish prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few Paper and Related Products stocks that investors can keep an eye on, it is worth looking at the industry’s stock-market performance and its valuation picture.
Industry Versus S&P 500 & Sector
The Paper and Related Products industry has outperformed the sector but lagged the S&P 500 over the past year. The stocks in this industry have gained 20.8%, whereas the Basic Materials sector has moved down 1.6%. The S&P 500 has grown 21% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly-used multiple for valuing Paper and Related Products companies, we see that the industry is currently trading at 9.8X compared with the S&P 500’s 19.69X and the Basic Material sector’s trailing 12-month EV/EBITDA of 11.72X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry traded as high as 12.38X and as low as 4.07X, the median being 7.27X.
3 Paper & Related Products Stocks to Watch
Sylvamo: Stronger order books, and higher pulp and paper prices will aid its top-line growth. The company has initiated a cost-reduction program called Project Horizon, which is focused on streamlining its organization and cost structures in an effort to make a leaner, stronger company. SLVM is on track to realize savings of at least $110 million by the end of 2024. Around $80 million of the target will come from operational improvements in its mills and supply chains, and the balance from the reduction in selling and administrative expenses. The company continues to lower its debt levels and maintains a strong financial position that enables it to invest in its business. It has a pipeline of more than $200 million of high-return capital projects, which will boost its earnings and cash flow profile. Sylvamo recently raised its quarterly dividend by 50% to 45 cents per share, the third increase in the last two years. The company’s shares have gained 52% in the past year.
Earnings estimates for Sylvamo’s fiscal 2024 have moved 2% north over the past 30 days. The estimate indicates year-over-year growth of 6%. Memphis, TN-based SLVM has a trailing four-quarter earnings surprise of 23.2%, on average. The company has a long-term estimated earnings growth of around 30% and a Zacks Rank #2 (Buy) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: SLVM
Stora Enso: The company’s ongoing profitability and cash flow improvement initiatives, coupled with favorable market conditions in some segments, have led to an improved earnings trend for three consecutive quarters. SEOAY also strengthened its leverage ratio despite record-high growth investments. The company has set a profit improvement target of €120 million from its profit improvement program that was initiated in February 2024. The consumer board investment at the Oulu site in Finland is progressing on schedule with production expected to start in the first half of 2025. It will support SEOAY’s long-term strategy to build market share in renewable and circular packaging solutions, which matter the most to its customers. Stora Enso plans to improve its cash flow through working capital management and intends to lower debt levels. SEOAY shares have gained 4.8% in the past year.
The Zacks Consensus Estimate for 2024 for the Helsinki, Finland-based company has moved up 21.3% in the past 30 days. The consensus estimate for Stora Enso indicates year-over-year growth of 173%. The company has a trailing four-quarter earnings surprise of 47.8%, on average. SEOAY currently has a Zacks Rank #3 (Hold) and a long-term estimated earnings growth of 51.65%.
Price & Consensus: SEOAY
Rayonier Advanced Materials: In the High Purity Cellulose segment, average sales prices for cellulose specialties are expected to increase going forward as the company prioritizes value over volume. Sales volumes will gain from the closure of a competitor’s plant and a modest increase in ether sales. The company’s bioethanol facility in Tartas, France, became operational in the first quarter of 2024 and is expected to deliver $3-$4 million of EBITDA in 2024, growing to $8-$10 million beginning in 2025. The Paperboard segment is expected to benefit from stable prices and higher volumes, reflecting customer demand. In October 2023, the company announced that it was exploring the potential sale of its Paperboard and High-Yield Pulp assets located at its Temiscaming site. This will align its portfolio with its long-term growth strategy, and provide flexibility to pay down debt, reduce leverage and minimize earnings volatility. The indefinite suspension of operations at the Temiscaming High Purity Cellulose plant, announced on Apr 29, 2024, is anticipated to mitigate the plant’s ongoing operating losses and high capital needs, thereby improving RYAM’s consolidated free cash flow. It is focused on lowering debt and investing in high-return projects and acquisitions to drive growth. RYAM shares have appreciated 48.8% over the past 12 months.
Earnings estimates for fiscal 2024 for Jacksonville, FL-based Rayonier Advanced Materials indicate year-over-year growth of 58%. Estimates have been unchanged over the past 30 days. RYAM carries a Zacks Rank #3 at present.
Price & Consensus: RYAM