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Here's Why WestRock (WRK) Stock is an Attractive Bet Now

Zacks Equity Research
·5-min read

WestRock Company WRK looks attractive at the moment, aided by forecast-topping second-quarter fiscal 2022 results. The company benefits from continued strength in packaging demand, price-increase actions and strong growth in e-commerce. Sustainable fiber-based packaging solutions, significant demand in food, foodservice and beverage packaging categories and improved box shipment will continue to drive growth.

Factors Detailing

Earnings & Sales surpass Q2 Estimates: WestRock reported second-quarter adjusted earnings of $1.17 per share, beating the Zacks Consensus Estimate of $1.01. Revenues of $5.4 million also outpaced the Consensus Estimate of $5.08 billion. The top and the bottom line increased 21.3% and 117% year over year, respectively.

Positive Earnings Surprise History: WestRock, a Zacks Rank #2 (Buy) stock, has a trailing four-quarter earnings surprise of 7.5%, on average.

Positive Growth Expectations: The company’s earnings estimate for fiscal 2022 is pegged at $5.11, suggesting year-over-year growth of around 50.7%.

Upward Estimate Revision: Current year figures look promising, with five estimates moving higher in the past one month compared to one downward revision. Earnings estimates for fiscal 2022 have gone up 6.5% in the past 30 days.

Upbeat View: For the third quarter of fiscal 2022, WestRock expects adjusted earnings per share (EPS) in the range of $1.36-$1.54. The mid-point of the guidance indicates a rise of 24% from the adjusted earnings per share of $1.17 in the second quarter of fiscal 2022. Adjusted segment EBITDA for the quarter is anticipated to be between $930 million and $990 million. The mid-point of the range indicates sequential growth of 12%.

Strong Financials: WestRock’s total debt was $8.4 billion as of the end of second-quarter 2022. The company’s net leverage ratio is at 2.34, nearing its long-term targeted range of 1.75-2.25. In the second quarter of fiscal 2022, the company generated $213 million of adjusted free cash flow, up significantly from the previous year's levels. For fiscal 2022, WRK expects a free cash flow of more than $1.3 billion.

Price Performance: WestRock’s shares have gained 2.8% over the past six months, compared with the industry’s growth of 1.6%.

Zacks Investment Research
Zacks Investment Research


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Growth Drivers

WestRock’s corrugated packaging business is poised to gain from improved box shipment and increased demand from distribution, industrial and agricultural customers as the economy recovers from the pandemic. E-commerce demand remains strong across all channels and momentum will continue, particularly on account of the coronavirus pandemic. The consumer packaging business is gaining from sustainable fiber-based paper and packaging solutions and demand in food and beverage packaging categories. Strong demand for paper products in domestic and export markets is driving WRK’s paper business. The company’s overall packaging business will gain from solid demand and the implementation of previously announced containerboard and boxboard price increases.

WestRock continues to invest in business, including strategic capital projects with attractive returns and targeted mergers and acquisitions. It has been witnessing healthy demand for containerboard and corrugated packaging in the Brazilian market and is well poised to capitalize on this growth with the ramp-up of the Tres Barras mill in the region. The company will reap the benefits of strategic capital projects in its mill and converting systems to improve the overall cost structure. These investments will enhance WestRock’s packaging capabilities in its served markets while reducing exposures to export containerboard and low-margin Specialty solid bleached sulfate businesses.

WestRock successfully started the new state-of-the-art 710,000-ton paper machine at Florence, SC mill, which replaces three old and obsolete machines. This mill is expected to achieve full-production levels at the end of the fiscal fourth quarter. As part of the portfolio-optimization effort, the company announced closing its containerboard and pulp mill in Panama City. The move will save significant capital investment required to operate the mill, which now can be deployed in high-return growth areas. Also, WestRock is reducing exposure to the fluff pulp to focus more on higher-value markets.

Other Stocks to Consider

Other top-ranked stocks in the basic materials space are Allegheny Technologies Inc. ATI, Nutrien Ltd. NTR and Albemarle Corporation ALB.

Allegheny has a projected earnings growth rate of 869.2% for the current year. The Zacks Consensus Estimate for ATI's current-year earnings has been revised 27.3% upward in the past 60 days.

Allegheny’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 128.9%, on average. ATI has gained around 15.2% in a year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutrien has a projected earnings growth rate of 161.9% for the current year. The Zacks Consensus Estimate for NTR’s current-year earnings has been revised 26.9% upward in the past 60 days.

Nutrien’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average being 5.8%. NTR has gained 59.5% in a year. The company flaunts a Zacks Rank #1.

Albemarle has a projected earnings growth rate of 175% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 85.8% upward in the past 60 days.

Albemarle’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.5%. ALB has gained 49.8% in a year. The company flaunts a Zacks Rank #1.


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