February 9, 2018

GPK – Market expectations are for record-high Uniform ROA, but management has concerns about costs, margins, and their planned partnership with IP


    • Graphic Packaging Holding Company (GPK:USA) currently trades above historical averages relative to UAFRS-based (Uniform) Earnings, with a 24.8x Uniform P/E, implying bullish expectations for the firm. However, management has concerns about costs, margins, and their planned partnership
    • Specifically, management may be exaggerating their ability to redistribute the majority of the Santa Clara CRB into their Midwest CRB and CUK mills following the mill’s closure, and may be concerned about the impact of increasing freight costs when shipping to the West Coast. Furthermore, they may lack confidence in their ability to increase their exposure to the growing foodservice market, and may also lack confidence in their claim that the partnership with International Paper has strong EBITDA margin potential
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