Greif, Inc. (GEF) and Packaging Corporation of America (PKG) are prominent players in the packaging industry. GEF operates through Global Industrial Packaging; Paper Packaging & Services; and Land Management segments. It produces and sells steel, plastic, fiber, flexible and corrugated containers, packaging accessories, and containerboard and provides blending, filling, and packaging services.
PKG manufactures and sells containerboard and corrugated packaging products through its Packaging and Paper segments to protect goods during shipment. It also produces multi-color boxes, displays, and meat and wax-coated boxes for the agricultural industry.
Increasing demand for sustainable packaging materials and solutions in retail, food and beverage, healthcare, and personal care industries should drive the packaging industry’s growth. Significant market demand is being driven by the increase in e-commerce sales, especially since the onset of the pandemic.
Although the industry is struggling to deal with the supply chain constraints, the introduction of smart packaging solutions and rising demand should enable many companies in this space to stay afloat. The U.S. packaging industry is expected to grow at a 2.9% CAGR to reach $218.12 billion by 2027. Therefore, both GEF and PKG should benefit.
While PKG increased 2% year-to-date, GEF surged 4.2%. GEF is a clear winner with 5.5% gains over the past six months versus PKG’s 3.2% returns. But which of these stocks is a better pick now? Let’s find out.
Recent Financial Results
For fiscal 2022 second quarter ended April 30, 2022, GEF’s revenue increased 24.4% year-over-year to $1.67 billion. The company’s gross profit came in at $338.70 million, representing a 27.4% rise from the prior-year period. Its operating profit came in at $190.10 million for the quarter, indicating a 5.2% year-over-year decline.
GEF’s net income came in at $125.10 million, down 16.5% from its year-ago period. Its class A common stock EPS decreased 16.5% year-over-year to $2.09. As of April 30, 2022, the company had $108.70 million in cash and cash equivalents.
For the fiscal 2022 first quarter ended March 31, 2022, PKG’s net sales increased 18.2% year-over-year to $2.14 billion. The company’s gross profit came in at $533.20 million, representing a 32.1% rise from the year-ago period. Its income from operations came in at $356.50 million for the quarter, representing a 49.6% rise from the prior-year period.
While its non-GAAP net income increased 51.4% year-over-year to $255.70 million, its non-GAAP EPS rose 53.7% to $2.72. As of March 31, 2022, the company had $628.60 million in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, GEF’s revenue, net income, and EPS have increased at CAGRs of 15.3%, 32.7%, and 32.1%, respectively.
GEF’s EPS is expected to increase 35.7% year-over-year in fiscal 2022, ending October 31, 2022, and decline 5.3% in fiscal 2023. Its revenue is expected to grow 16.1% in fiscal 2022 and decline 3% in fiscal 2023. Its EPS is expected to grow at a 10% rate per annum over the next five years.
Over the past three years, PKG’s revenue, net income, and EPS have grown at 4.5%, 5.8%, and 5.7% CAGRs, respectively.
Analysts expect PKG’s EPS to increase 22.7% year-over-year in fiscal 2022, ending December 31, 2022, and 2.6% in fiscal 2023. Its revenue is expected to grow 11.6% year-over-year in fiscal 2022 and 1.9% in fiscal 2023. Its EPS is expected to improve at a rate of 9.7% per annum over the next five years.
Valuation
In terms of non-GAAP PEG, PKG is currently trading at 2.31x, 110% higher than GEF’s 1.10x. In terms of forward EV/Sales, GEF’s 0.83x compares with PKG’s 1.73x.
Profitability
PKG’s trailing-12-month revenue is 1.3 times that of GEF’s. Moreover, PKG is also profitable, with a 24.9% gross profit margin versus GEF’s 19.7%.
Furthermore, PKG’s ROE, ROA, and ROTC of 26.1%, 11.4%, and 14.2% compare with GEF’s 23.5%, 7.4%, and 10.1%, respectively.
POWR Ratings
While GEF has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, PKG has an overall B grade, equating to Buy. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both GEF and PKG have been graded a B for Quality, consistent with their higher-than-industry profitability ratios. GEF’s 23.1% trailing-12-month ROE is 78.6% higher than the 12.9% industry average. PKG has a 25.9% trailing-12-month ROE, 100.8% higher than the 12.9% industry average.
GEF has a B grade for Value, which is in sync with its lower-than-industry valuation ratios. GEF’s 0.83x forward EV/Sales is 40.2% lower than the 1.39x industry average. PKG’s C grade for Value is in sync with its slightly higher-than-industry valuation ratios. PKG’s 1.73x forward EV/Sales is 24.1% higher than the 1.39x industry average.
Of the 22 stocks in the A-rated Industrial - Packaging industry, GEF is ranked #2, while PKG is ranked #12.
Beyond what we have stated above, our POWR Ratings system has graded GEF and PKG for Sentiment, Stability, Growth, and Momentum. Get all GEF ratings here. Also, click here to see the additional POWR Ratings for PKG.
The Winner
Given the e-commerce industry’s growth and growing interest in smart packaging solutions, the rising demand for packaging solutions should benefit GEF and PKG. However, a relatively lower valuation makes GEF a better buy here.
Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Industrial - Packaging industry.
GEF shares were trading at $62.92 per share on Thursday afternoon, down $0.00 (0.00%). Year-to-date, GEF has gained 5.84%, versus a -19.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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