Investor Essentials Daily

This newborn giant will dominate the packaging

July 19, 2024

Smurfit Westrock (SW) began trading after the merger of Smurfit Kappa and Westrock, becoming the largest packaging company and listed on the New York and London stock exchanges.

Before the merger, Westrock struggled with rising debt and declining financials amid industry challenges like reduced consumer demand and higher raw material costs.

The merger improved Westrock’s financial health with Smurfit Kappa’s strong cash reserves addressing debt issues.

Despite the improved financial situation, market concerns about industry challenges and Westrock’s past financial troubles persist.

The merger is expected to bring significant cost savings and operational efficiencies, positioning Smurfit Westrock well for future growth and expansion as the market recovers.

Investor Essentials Daily:
Friday News-based Update
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Smurfit Westrock (SW) has officially started trading following the merger of two packaging giants, Smurfit Kappa and Westrock.

This merger has resulted in the creation of the biggest packaging company out there, with shares now trading on the New York and London stock exchanges.

Before the merger, Westrock faced substantial market concerns due to its rising debt and weakening financials, including dropping sales and gross margins.

These issues were compounded by broader challenges in the packaging industry, which relies heavily on consumer demand.

When the economy takes a downturn, consumer spending drops, directly impacting the demand for packaging products. Additionally, the industry has been dealing with increasing costs of raw materials, which puts pressure on profit margins.

On top of that, there’s a growing push for sustainable packaging solutions, driven by consumer preferences and regulatory requirements. Meeting these demands requires significant investment, adding another layer of financial strain.

However, the merger has significantly improved Westrock’s financial health. Smurfit Kappa’s strong cash reserves and recent bond offerings have provided the capital needed to address Westrock’s debt issues.

Smurfit Westrock now proudly calls itself the “partner of choice in sustainable packaging.”

The merger has also given the company an impressive global footprint, covering key markets in North America, Europe, and beyond. This broad reach not only spreads risk but also positions the company to seize growth opportunities in emerging markets.

Despite these improvements coming from the merger, the market still has concerns about the packaging industry’s challenges and Westrock’s previous financial troubles.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform return on assets ”ROA” to fall to around 6%.


According to the Financial Times, the merger is expected to bring substantial cost savings and operational efficiencies, giving Smurfit Westrock a competitive edge.

As the market starts to recover and consumer spending increases, Smurfit Westrock is in a prime position to reap the benefits.

The company’s solid financial footing, diverse product range, and commitment to sustainability are key strengths that will drive growth.

The merger has not only resolved immediate financial issues but has also set the stage for future expansion.


Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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