Earnings

Dissecting the Numbers for Ball Corporation (BLL) and Packaging Corporation of America (PKG)

Ball Corporation (NYSE:BLL) shares are up more than 7.39% this year and recently increased 0.83% or $0.33 to settle at $40.31. Packaging Corporation of America (NYSE:PKG), on the other hand, is up 32.47% year to date as of 11/13/2017. It currently trades at $112.36 and has returned 1.26% during the past week.

Ball Corporation (NYSE:BLL) and Packaging Corporation of America (NYSE:PKG) are the two most active stocks in the Packaging & Containers industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect BLL to grow earnings at a 12.64% annual rate over the next 5 years. Comparatively, PKG is expected to grow at a 11.03% annual rate. All else equal, BLL’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 13.98% for Packaging Corporation of America (PKG). BLL’s ROI is 5.40% while PKG has a ROI of 12.20%. The interpretation is that PKG’s business generates a higher return on investment than BLL’s.

Cash Flow 




Earnings don’t always accurately reflect the amount of cash that a company brings in. BLL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.79. Comparatively, PKG’s free cash flow per share was +0.55. On a percent-of-sales basis, BLL’s free cash flow was 3.05% while PKG converted 0.9% of its revenues into cash flow. This means that, for a given level of sales, BLL is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. BLL has a current ratio of 1.00 compared to 2.40 for PKG. This means that PKG can more easily cover its most immediate liabilities over the next twelve months. BLL’s debt-to-equity ratio is 2.14 versus a D/E of 1.32 for PKG. BLL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BLL trades at a forward P/E of 17.32, a P/B of 4.00, and a P/S of 1.33, compared to a forward P/E of 16.64, a P/B of 5.27, and a P/S of 1.68 for PKG. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. BLL is currently priced at a -11.5% to its one-year price target of 45.55. Comparatively, PKG is -4.96% relative to its price target of 118.23. This suggests that BLL is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.20 for BLL and 2.50 for PKG, which implies that analysts are more bullish on the outlook for PKG.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. BLL has a beta of 1.01 and PKG’s beta is 1.86. BLL’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. BLL has a short ratio of 10.93 compared to a short interest of 2.69 for PKG. This implies that the market is currently less bearish on the outlook for PKG.

Summary

Ball Corporation (NYSE:BLL) beats Packaging Corporation of America (NYSE:PKG) on a total of 8 of the 14 factors compared between the two stocks. BLL is growing fastly, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, BLL is the cheaper of the two stocks on book value and sales basis, BLL is more undervalued relative to its price target. Finally, WRK has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Analyzing the Insider Data for Autohome (ATHM) Recent insider trends for Autohome Inc. (NYSE:ATHM) have caught the attention of investors. Patters in insider activity can help analysts formulate an...
Dissecting the Insider Trading Patterns of CorMedi... Recent insider trends for CorMedix, Inc. (NYSE:CRMD) have caught the attention of investors. Analysts study insider data to get a sense of sense of wh...
Should You Buy CSX Corporation (CSX) or Norfolk So... CSX Corporation (NASDAQ:CSX) and Norfolk Southern Corporation (NYSE:NSC) are the two most active stocks in the Railroads industry based on today’s tra...
Fundamentals in Focus for SM Energy Company (SM) SM Energy Company (NYSE:SM) has recently been identified as an interesting stock but more in-depth monitoring is needed for a trade decision. Now trad...
What do Insider Trends Have to Say About Sirius XM... Recent insider trends for Sirius XM Holdings Inc. (NASDAQ:SIRI) have caught the attention of investors. Analysts monitor insider data to understand th...