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Reasons Why You Should Hold WestRock in Your Portfolio Now

Zacks Equity Research

WestRock Company WRK stock looks promising at the moment based on its compelling prospects for fiscal 2020. The company remains well-poised for growth, backed by focus on continued investment in projects and the KapStone acquisition. Further, productivity and performance improvement programs across its manufacturing footprint will aid results.

The provider of paper and packaging solutions, which has a market capitalization of $10.3 billion, carries a Zacks Rank #3 (Hold).

Factors Favoring WestRock

Positive Earnings Surprise History: WestRock outpaced the Zacks Consensus Estimate in the trailing four quarters, the average positive earnings surprise being 10.51%.

Earnings Ahead of Industry: Over the past five years, WestRock has an earnings growth of 14.7%, higher than the industry’s 10.0%. The stock has an estimated long-term earnings growth rate of 4.3%.

Price Performance: Shares of WestRock have gained 2.6% so far this year, against the industry’s decline of 4.7%.

Higher Inventory Turnover Ratio: Over the trailing 12 months, the inventory turnover ratio for WestRock has been 6.94% compared with the industry's level of 5.33%. Notably, higher the metric, faster will be the rate at which it is sold, suggesting effective inventory management.

Growth Drivers in Place

During fiscal 2018 and 2019, the company completed acquisitions of Schlüter, Plymouth Packaging and rival KapStone Paper and Packaging Corp that expanded its product offerings and geographic presence. The integration of KapStone Paper, the most notable acquisition among these, is on track. The company anticipates cost synergies and performance improvements of more than $200 million by the end of fiscal 2021.

KapStone’s corrugated packaging operations will enhance WestRock’s North American corrugated packaging business and provide complementary products. The acquisition will help the company strengthen presence in Western United States and to compete better in the growing agricultural markets in the region. It also fast-tracks its target to improve margins of its North American corrugated packaging business. The company continues to evaluate potential acquisitions in the future.

The company plans to invest approximately $1.0 billion of capital in its business in the fiscal 2018-2021 timeframe. This is anticipated to generate $240 million in annualized EBITDA. In fiscal 2019, the company completed strategic capital projects at its Porto Feliz corrugated box plant in Sao Paulo, Brazil, Cottonton, AL and Covington, VA mills. It also continues to invest in strategic projects at its Florence, SC and Tres Barras, Brazil.

WestRock is also focused on productivity and performance improvement programs across its manufacturing footprint, which in turn will sustain margins. Recently, the company announced that it is reconfiguring its North Charleston, SC, paper mill to improve the long-term competitiveness of the mill. The move is expected to increase the company’s annual EBITDA by approximately $40 million, primarily owing to the reduction in operating costs from the shutdown of the paper machine and its associated infrastructure.

Bottom Line

Investors might want to hold on to the stock for the moment as it shows ample prospects of outperforming its peers in the near future.

Stocks to Consider

Some better-ranked stocks worth considering in the basic materials space include Agnico Eagle Mines Limited AEM , Kirkland Lake Gold Ltd. KL and Franco-Nevada Corporation FNV, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle has a projected earnings growth rate of 168.6% for the current year. The company’s shares have rallied 50% so far this year.

Kirkland Lake Gold has projected earnings growth rate of 96.3% for the current year. The company’s shares have surged 88% year to date.

Franco-Nevada has estimated earnings growth rate of 46.2% for the current year. Year to date, the company’s shares have appreciated 40%.

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