Chicago, IL – January 21, 2025 – Today, Zacks Equity Research Equity International Paper Co. IP, Suzano SUZ, Klabin KLBAY and Sylvamo SLVM.
Industry: Paper Products
Link: https://www.zacks.com/commentary/2399065/4-paper-related-products-stocks-set-to-capitalize-on-promising-industry-trends
The Zacks Paper and Related Productsindustry 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 like International Paper Co., Suzano, Klabin and Sylvamo are well-positioned to capitalize on the above-mentioned trends as they continue to position themselves favorably in the evolving market landscape.
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.
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 products and withstand the complexities of delivery.
In 2023, e-commerce accounted for more than 19% of retail sales worldwide. The same is projected to increase to 25% by 2027. According to Statista, global e-commerce revenues are expected to reach $4,791 billion in 2025 and see a compound annual growth rate (CAGR) of 7.83% between 2025 and 2029. This presents a major growth opportunity for the Paper and Related Products industry.
Increased M&A Activities to Transform the Paper & Packaging Landscape: 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 was formed by merging two major paper and packaging industry players — Smurfit Kappa and WestRock — on July 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 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.
The Zacks Paper and Related Products industry is a 10-stock group within the broader Basic Materialssector. The industry currently carries a Zacks Industry Rank#41, which places it in the top 16% of the 250 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 valuation picture.
The Paper and Related Products industry has outperformed the sector and the S&P 500 over the past year. The stocks in this industry have gained 42.5% whereas the Basic Materials sector has declined 1.8%. The S&P 500 has grown 26.8% in the said time frame.
On the basis of the forward 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 9.24X compared with the S&P 500’s 13.96X and the Basic Material sector’s forward 12-month EV/EBITDA of 6.64X.
Over the last five years, the industry traded as high as 16.26X and as low as 7.82X, the median being 10.33X.
Suzano: The company recently inaugurated the world's largest single-line pulp mill in Ribas do Rio Pardo, Mato Grosso do Sul state, which has the capacity to produce 2.55 million tons of pulp per year. This marked the largest investment in Suzano's 100-year history. It will boost SUZ’s installed pulp production capacity by 24% to 13.5 million tons per year.
The company acquired two industrial assets from Pactiv Evergreen in Arkansas and North Carolina in October 2024. The assets offer strategic advantages, given the high availability and competitive prices for wood and energy in the region and access to railways, ports and highways. SUZ will now become a major supplier of paper used to produce liquid packaging boards in North America. It is currently the largest supplier of hardwood market pulp in North America.
Suzano also bought a 15% stake in Lenzing, which is a global supplier of premium cellulosic fibers for the textile and non-woven industry. This is in sync with its strategy to grow in new markets.
The Zacks Consensus Estimate for 2025 earnings for the Salvador, Brazil-based integrated pulp and paper producer has surged 39% in the past 60 days. The estimate indicates year-over-year growth of 364%. Suzano currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Sylvamo: It has initiated a cost-reduction program called Project Horizon, which is focused on streamlining its organization and cost structures to make a leaner, stronger company. SLVM expects its savings to have exceeded the $110 million mark in 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.
It is witnessing strong demand and expects recent capacity reduction announcements to lead to more favorable supply and demand balance trends in 2025. The company continues to lower its debt levels and maintains a strong financial position, enabling 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.
Earnings estimates for Sylvamo for 2024 have moved north 10.5% north over the past 60 days. The estimate indicates year-over-year growth of 17.5%. Memphis, TN-based SLVM has a trailing four-quarter earnings surprise of 16.7%, on average. The company has a long-term estimated earnings growth of 4.2% and a Zacks Rank of 1 at present.
International Paper: The company has been optimizing cost structure, making investments to strengthen its competitive and strategic assets and reducing complexity in the business. It is adding capacity to its existing plants and investing in plants that will help it capitalize on the demand for corrugated and containerboard packaging going forward.
International Paper’s pending acquisition of DS Smith marks a strategic move to strengthen its corrugated packaging business in Europe and prioritize sustainable packaging. The buyout is expected to be accretive to IP's earnings in the first year of closure and provide at least $514 million of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the closure. The acquisition is expected to close by the first quarter of 2025.
This Memphis, TN-based entity has a trailing four-quarter earnings surprise of 28.8%, on average. The Zacks Consensus Estimate for IP’s 2025 earnings has moved up 3.4% over the past 60 days. The estimate indicates year-over-year growth of 156%. International Paper currently carries a Zacks Rank #2 (Buy).
Klabin: The company has been witnessing continued improvement in market conditions for the packaging and paper segments. Its total sales volumes rose 6% year over year in the first nine-month period of 2024. The ramp-up of Paper Machines 27 and 28 is expected to boost production volumes in 2025. In September 2023, KLBAY inaugurated the Puma II project, with R$12.9 billion invested in installing the two paper machines — PM27 and PM28 — which have a total annual production capacity of 910,000 tons of paper.
The MP28 machine marked Klabin’s debut in the white paperboard market, reinforcing the expansion of its product portfolio. The company began operations at its new corrugated cardboard packaging factory, Figueira Project, in Piracicaba, São Paulo. The unit has an annual production capacity of 240 thousand tons per year and will allow KLBAY to reach 1.2 million tons of corrugated cardboard conversion capacity annually.
In 2024, Klabin restarted paper machines that were stopped previously due to market conditions. The PM1 (Monte Alegre), which produces kraftliner and PM17 (Goiana) that produces recycled paper, restarted in June 2024. Klabin’s efforts to improve efficiency in its operations and lower costs will also aid earnings.
The Zacks Consensus Estimate for the São Paulo, Brazil-based company’s 2025 earnings has moved up 15% over the past 60 days to 68 cents per share. It shows a significant improvement from the expected earnings of three cents per share for 2024. Klabin currently has a Zacks Rank of 2 and long-term estimated earnings growth of 3.6%.
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International Paper Company (IP) : Free Stock Analysis Report
Klabin SA (KLBAY) : Free Stock Analysis Report
Suzano S.A. Sponsored ADR (SUZ) : Free Stock Analysis Report
Sylvamo Corporation (SLVM) : Free Stock Analysis Report
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