Packaging Corporation of America (PKG): Valuation Check After Wallula Mill Capacity Cuts and Cost-Saving Overhaul

Packaging Corporation of America (PKG) just made a big operational call at its Wallula mill, permanently closing one paper machine and kraft pulping. The move cuts capacity but targets meaningfully lower costs and better long term earnings power.

See our latest analysis for Packaging Corporation of America.

The restructuring news lands after a choppy stretch for the stock, with a 1 month share price return of 3.98 percent but a weaker year to date share price return of negative 8.95 percent. The 3 year total shareholder return of 69.94 percent signals that longer term momentum remains intact even as investors reassess near term earnings risk.

If Wallula's reset has you thinking more broadly about where operational change can drive value, it might be worth exploring fast growing stocks with high insider ownership as a source of fresh ideas.

With Wallula's overhaul set to unlock sizable cost savings and analysts still seeing upside to the current share price, is PKG quietly trading below its true worth, or has the market already priced in the next leg of growth?

Most Popular Narrative Narrative: 8.7% Undervalued

Compared with Packaging Corporation of America’s last close at $205.07, the most widely followed fair value estimate of $224.70 points to modest upside and leans heavily on a detailed long term earnings roadmap.

The analysts have a consensus price target of $213.444 for Packaging Corporation of America based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $244.0, and the most bearish reporting a price target of just $152.0.

Read the complete narrative.

Curious what kind of steady growth, fatter margins, and future earnings multiple are needed to justify that higher fair value band? The full narrative lays out a surprisingly ambitious glide path, one that links incremental pricing power and capacity moves to a premium yet still defensible valuation story.

Result: Fair Value of $224.70 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, softer containerboard demand and rising operating costs could quickly squeeze margins and undercut the optimistic earnings glide path embedded in current targets.

Find out about the key risks to this Packaging Corporation of America narrative.

Build Your Own Packaging Corporation of America Narrative

If the assumptions behind this view do not quite match your own, you can dig into the numbers yourself and shape a fresh perspective, then Do it your way in under three minutes.

A great starting point for your Packaging Corporation of America research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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