In this piece, I evaluated two consumer packaging stocks, Crown Holdings (NYSE:CCK) and Veritiv (NYSE:VRTV), to determine which is better. Upon closer analysis, I am bullish on both, but VRTV looks more attractive out of the two due to its valuation.
Consumer packaging is a relatively recession-resistant industry that doesn’t get much attention—despite the fact that virtually every product sold around the world requires packaging of some sort. One estimate from Arizton suggests the global packaging market could see a compound annual growth rate of 5% through 2028, surpassing $285 billion in revenue.
With this in mind, let’s take a closer look at these two consumer packaging stocks.
Based on one-year returns, Crown Holdings and Veritiv are night and day, with the former down 24.7% and the latter up 41%. Crown makes metal food and beverage cans, specialty packing, metal aerosol containers, and metal closures.
On the other hand, Veritiv engineers and designs packaging and makes everything from tape and other adhesives to bags, corrugated cardboard, plastic cushioning products, mailers, temperature-controlled packaging, and glass containers.
Crown Holdings (NYSE:CCK)
Due to its valuation and financial stability, a bullish view seems appropriate for Crown Holdings—with the caveat that it could take a while for this thesis to play out.
Crown is trading at a price-to-sales (P/S) ratio of 0.8 and a price-to-earnings (P/E) ratio of 14.4 times, which is in line with where the industry is trading now. The U.S. packaging industry is trading at a P/E of 15.6 times and a P/S of 0.86 times, versus its three-year averages of 25 times and 1.0, respectively.
Given that the industry is trading so far below its averages, it seems only a matter of time before the multiples recover, including that of Crown Holdings. However, it could take a while.
A review of Crown Holdings’ financials over the last few years reveals stability and even revenue growth during the pandemic. The company reported $9.6 billion in sales for 2019, followed by $9.4 billion for 2020. In 2021 and 2022, Crown Holdings enjoyed robust sales growth, rising from $11.4 billion in 2021 to $12.9 billion in 2022.
However, the company was unprofitable in 2021 and reported slightly negative free cash flow for the 2022 fiscal year, coming in at -$36 million. Inflation and interest rates took a bite out of Crown’s returns, and management said in October that this will continue until their “contractual inflationary resets.” Once these headwinds ease, things look bright.
What is the Price Target for CCK Stock?
Crown Holdings has a Moderate Buy consensus rating based on seven Buys, five Holds, and zero Sell ratings assigned over the last three months. At $97.55, the average Crown Holdings stock price target implies upside potential of 14.9%.
Veritiv (NYSE:VRTV)
Veritiv faces many of the same headwinds as Crown, but it may be a diamond in the rough, given that it doesn’t get nearly as much analyst coverage. Based on its valuation and other factors, a bullish view looks appropriate for Veritiv as well.
Veritiv is trading at a P/S of 0.25 times and a P/E of 6.0 times, which are significantly below the industry’s current and three-year averages. The company did see a meaningful hiccup during the pandemic, though, as its revenues fell from $7.66 billion in 2019 to $6.35 billion in 2020.
However, Veritiv’s sales also fell from $8.7 billion in 2018. The company’s revenue then climbed to $6.9 billion in 2021 and $7.3 billion for the last 12 months. Veritiv was unprofitable in 2017, 2018, and 2019 but has since been growing its net income steadily, enjoying a significant jump from $144.6 million in 2021 to $323.2 million in the last 12 months.
VRTV’s fourth-quarter earnings release will be vital. Despite the struggles, Veritiv managed to remain free cash flow positive since 2019, which is a good sign. Its net margins could use some work, but otherwise, the company looks solid.
What is the Price Target for VRTV Stock?
Veritiv has a Moderate Buy rating based on just one Buy rating assigned over the last three months. At $142, Veritiv’s stock price target implies upside potential of 7.5%.
Conclusion: Long-Term Bullish on CCK, Bullish on VRTV
Since Crown Holdings is trading roughly in line with the industry estimate, the bull thesis could take longer to play out than Veritiv’s does. Crown requires the industry to re-rate higher in line with its three-year history, so there could be more risk there.
Meanwhile, Veritiv is trading far below the current industry average, let alone the industry’s three-year average. Thus, while bullish views may be appropriate for both consumer packaging names, Veritiv looks more attractive in the near term.
