Analysts at Bank of America adjusted their rating for some packaging and paper/forest products stocks in a note to clients Tuesday, stating they prefer value, cyclicals, and turnarounds.
The firm upgraded shares of Pactiv Evergreen (PTVE) and Brady Corp. (BRC) to Buy based on their valuations and margin/earnings improvement. In addition, BofA downgraded Avery Dennison (NYSE:AVY) and Ball Corporation (NYSE:BALL) to Underperform, again based on valuation and given the recent rally in the stocks.
"While Ball Corp and Avery have long been amongst our favorite companies, we move both to U/P. This is partly a valuation call as both stocks have gotten close to our POs in recent weeks with AVY at 22x 2024E EPS and BALL at 18x, and also given our ratings distribution," explained analysts.
"Additionally, we upgrade Brady (BRC) and Pactiv Evergreen (PTVE), both to Buy. BRC currently trades at 15x our 2024 EPS estimate, while PTVE is at 13x," they added.
Overall, the bank is most positive on specialty packaging as multiples are less expensive and there is more of a cyclical catalyst, although they note that rigid packaging is also fairly inexpensive.
"Containerboard would seem to be well positioned (we're early in the recovery, we did upgrade WestRock several quarters ago), but containerboard is not relatively inexpensive v. past, early-cycle periods," said the analysts. "In beverage cans, multiples have also expanded. Lastly, in wood/timber, we clearly could have been quicker with rating adjustments - U/P-rated Louisiana-Pacific and Boise Cascade have rebounded off lows - but we expect a potential pullback."