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WestRock (WRK) Hits 52-Week High: What's Driving the Stock?

WestRock Company WRK shares scaled a new 52-week high of $52.98 on May 17 before closing the session lower at $52.94.

WRK has a market capitalization of $13.6 billion. The company’s shares have gained 92.8% over the past year compared with the industry’s 43.4% growth.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

What’s Driving WestRock?

Packaging Products’ Demand Stable: Even though the company has witnessed weak demand lately, WestRock will be supported by stable demand for corrugated packaging, containerboard, and food and beverage consumer packaging. Its overall packaging business is poised well to gain on strong demand, and the implementation of containerboard and boxboard price increases.

Additionally, the company has been benefiting from increasing customer demand for eco-friendly, fiber-based packaging solutions. The global initiative to replace plastic remains the key growth driver for WestRock, supported by an estimated $9-billion total addressable market in North America and $50 billion globally.

Pending Merger Bodes Well: WestRock’s pending merger with Smurfit Kappa Group Plc SMFKY will create one of the world’s largest paper and packaging companies worth around $20 billion. Smurfit WestRock will have an unmatched geographic reach spanning 42 countries. Given this scale, and equipped with both WestRock’s and Smurfit Kappa’s highly complementary portfolios and innovative sustainability capabilities, the merged entity is likely to be the global “Go-To” packaging partner for companies and customers across the globe.

WestRock and Smurfit Kappa’s combined last 12 months’ revenues and adjusted EBITDA were around $34 billion and $5.5 billion, respectively (as of Jun 30, 2023). The combination will lead to improved operating efficiency and increased returns across more than 500 converting operations and 67 mills. It is projected to lead to annual pre-tax run-rate cost synergies of more than $400 million in the first year following its completion. The deal, subject to customary closing conditions, is expected to close in July 2024.

Balance Sheet Strong: WestRock delivered an adjusted free cash flow of $933 million in fiscal 2023, driven primarily by working capital improvements and lower capital expenditure. The figure was within its guidance of $800 million to $1 billion. In the first half of fiscal 2024, WestRock invested $549 million in capital expenditure and returned $156 million to stockholders in dividend payments.

The company had $3 billion of available liquidity from long-term committed credit facilities, and cash and cash equivalents as of Mar 31, 2024. It has been gaining from its cost-saving actions and contribution from recent acquisitions. WestRock has achieved more than $160 million in cost savings so far in the fiscal year and seems set to exceed its previously announced fiscal 2024 target of $300-$400 million.

Strategic Investments & Acquisitions Drive Growth: WestRock continues to invest in business, which includes strategic capital projects that have attractive returns, and targeted mergers and acquisitions. Apart from the Grupo Gondi buyout, the company is well-poised to expand growth in the region with the ramp-up of the TresBarras mill and Porto Feliz box plant in Brazil.

The company will also 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 SBS businesses.

WRK also successfully started the state-of-the-art 710,000-ton paper machine at Florence, SC, which replaces three old and obsolete machines. In January 2024, the company announced plans to develop a corrugated box mill in Pleasant Prairie to meet rising customer demand in the Great Lakes region. This investment will allow WestRock to expand its production capacity and enhance its cost profile in the Great Lakes region.

The new facility is projected to help cut manufacturing costs and waste, improving WestRock's total manufacturing cost profile, while boosting sustainability through lower energy use and new technologies.

Zacks Rank & Other Stocks to Consider

WestRock currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks from the basic materials space are Carpenter Technology Corporation CRS and ATI Inc. ATI. CRS flaunts a Zacks Rank #1 at present and ATI has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Carpenter Technology’s 2024 earnings is pegged at $4.18 per share. The consensus estimate for 2024 earnings has moved 6% north in the past 60 days. It has an average trailing four-quarter earnings surprise of 15.1%. CRS shares have gained 134.9% in a year.

The Zacks Consensus Estimate for ATI’s 2024 earnings is pegged at $2.41 per share. The Zacks Consensus Estimate for ATI’s current-year earnings has been revised 3% north in the past 60 days. It has an average trailing four-quarter earnings surprise of 8.3%. The company’s shares have rallied 65.9% in the past year.

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