Almost Time To Buy Graphic Packaging Holding Company (NYSE:GPK)

Graphic Packaging Holding Company Is A Play On eCommerce

International Paper (NYSE:IP) emerged as a play on eCommerce for me a few weeks ago. A rising number of bullish analysts are pointing to a growing demand for packaging products due to the pandemic. The pandemic spurred a massive shift to eCommerce that relies heavily on the packaging industry and that includes Graphic Packaging Holding Company (NYSE:GPK).

Another evidence eCommerce is going to drive revenue for packaging companies like International Paper and Graphic Packaging Holding Company are rumors from the shipping industry. We already knew rising demand and tight market conditions were driving revenue gains for the shippers, the latest news is that holiday capacity is already spoken for and we’re still two months away from Christmas. That’s a lot of boxes.

"IP (International Paper) is reaping benefits from increased food-at-home consumption and accelerated adoption of delivery-to-home activity (including FMCG and takeout food) in its Industrial Packaging segment. Additionally a tight inventory position, building backlogs, and potential for input cost inflation into 2021 is paving the way for a $40-50/ton linerboard price increase," said Wells Fargo in a note to investors.

Graphic Packaging Holding Company Beats On The Top And Bottom Line

Graphic Packaging Holding Company reported top-line revenue growth of 7.6% topping the estimates by more than 100%. The consensus for growth was closer to 3.5%. At the organic level, revenue grew by 4.2% versus 3.5% in the prior-year period. The acceleration in YOY growth is attributed to volume, mix, and acquisitions with an additional benefit from FX conversions. The only negative is that GAAP earnings did not respond positively to the uptick in revenue but adjusted EPS. GAAP EPS of $0.23 is inline with consensus while adjusted EPS of $.26 beat by $0.04.

Michael Doss, the company's President, and CEO, said, "We continue to deliver excellent results in 2020 consistent with our Vision 2025 goals and we are capturing organic sales growth as we answer the call from consumers for more sustainable packaging solutions. Net organic sales growth accelerated on a sequential basis to over 4% in the third quarter. Our business pipeline remains robust and we are uniquely positioned to capture growth with our innovative fiber-based packaging solutions."

Graphic Packaging Holding Company Returns Capital To Shareholders

Not only is Graphic Packaging Company riding a wave of growth, it is a company that returns to capital to shareholders. Over the past quarter, it paid a total of $366.7 million in the form of buybacks, repurchases, and redemptions. The company pays about 27% of its earnings in dividends for a yield near 2.2%. The company is not known for dividend-growth but the payment has been steady at the current level since early 2017.

The balance sheet is in good shape although there is some debt. Total debt increased over the quarter but the leverage ratio remains very low at 3.44X adjusted earnings. The only real problem I see is that free-cash-flow is tight but not non-existent. The company still has ample flexibility and will pay down its acquistional debt, debt that is helping to fuel growth, over the next few years.

The Technical Outlook: Graphic Packaging Holding Company Is Winding Up

The 3Q earnings news was enough to get the stock up in early trading but that is the best thing I can say about the chart. Selling set in immediately after the open shaving more than 4.0% off of the stock price. The good news is that price action did not break the rapidly narrowing consolidation range the stock has been in for months. In the near-term, price action may continue down to the bottom of the range near $13.25, I do not expect this level to break. Short to medium-term, I expect this stock will continue to wind within its range until breaking out. The bias is to the upside but it may take more good news to make it happen.