The food packaging market is set to grow rapidly due to increasing demand for food delivery and takeout, new technologies, and rising incomes. Moreover, there is a rising emphasis on eco-friendly packaging, improved convenience, and strategic investments, which further boosts market potential and optimization.
Given these strong growth drivers, investing in fundamentally strong packaging stocks like Karat Packaging Inc. (KRT) and Sealed Air Corporation (SEE) could be worth your money now. Before diving deeper into the fundamentals of these stocks, let’s discuss what is shaping the food packaging industry's prospects.
Consumers now seek longer shelf life and healthier options, prompting companies to innovate their products and packaging. Supermarkets and food brands are replacing traditional formats with high-barrier films and retort pouches, focusing on recyclable materials and convenience.
Meanwhile, brands continue to provide custom, unique, and often luxurious packaging to satisfy customers, driving demand for single-use disposable products made from plastic, paper, biopolymers, and compostable materials in restaurants and food services. As a result, the packaging market is expected to reach $1.38 trillion by 2029, with a 3.9% CAGR, making it a promising investment opportunity.
Let's take a closer look at the fundamentals of the two featured Industrial – Packaging stocks, beginning with the second choice.
Stock #2: Karat Packaging Inc. (KRT)
KRT manufactures and distributes single-use disposable products in plastic, paper, biopolymer-based, and other compostable forms used in various restaurant and foodservice settings. It provides food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves, and other products under the Karat Earth brand.
On August 7, 2024, KRT announced a regular quarterly cash dividend of $0.35 per share and a special cash dividend of $0.15 per share, both payable on August 30, 2024. These distributions reflect the company's strong cash position and positive outlook.
In terms of the trailing-12-month levered FCF margin, KRT’s 8% is 22.7% higher than the 6.52% industry average. Likewise, its 37.22% trailing-12-month gross profit is 18.7% higher than the 31.35% industry average. Furthermore, the stock’s 1.37x trailing-12-month asset turnover ratio is 76.4% higher than the 0.78x industry average.
KRT’s net sales for the second quarter ended June 30, 2024, came in at $112.60 million, indicating a 3.5% increase from the year-ago value. Its gross profit increased 3.7% year-over-year to $43.41 million. The company’s net income attributable to KRT stood at $9.10 million. In addition, the adjusted EPS and EBITDA were $0.49 and $15.68 million, respectively.
For the quarter ending September 30, 2024, KRT’s EPS and revenue are expected to increase 4.1% and 7% year-over-year to $0.49 and $112.93 million, respectively. Over the past nine months, the stock has gained 22.5% to close the last trading session at $25.74.
KRT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Stability. Within the A-rated Industrial – Packaging industry, it is ranked #4 out of 19 stocks. To see KRT’s Growth, Value, Momentum, and Sentiment ratings, click here.
Stock #1: Sealed Air Corporation (SEE)
SEE provides packaging solutions in the Americas, Europe, the Middle East, Africa, Asia, Australia, and New Zealand. It operates through two segments: Food and Protective.
On July 23, 2024, SEE announced a quarterly cash dividend of $0.20 per common share, payable on September 27, 2024. This dividend is for stockholders of record as of September 13, 2024.
In terms of the trailing-12-month levered FCF margin, SEE’s 9.50% is 77.2% higher than the 5.36% industry average. Similarly, its 9.50% trailing-12-month Return on Total Capital is 91.5% higher than the 4.96% industry average. Also, the stock’s 0.73x trailing-12-month asset turnover ratio is 10% higher than the 0.67x industry average.
During the fiscal second quarter that ended June 30, 2024, SEE’s net sales amounted to $1.35 billion. Its adjusted EBITDA stood at $285.50 million, up 1.9% over the prior-year quarter. Additionally, its adjusted net earnings rose 4.5% from the year-ago value to $120.70 million, and its adjusted EPS grew 3.7% year-over-year to $0.83.
Street expects SEE’s revenue for the quarter ending December 31, 2024, to increase marginally year-over-year to $1.38 billion. Its EPS for fiscal 2025 is expected to grow 6% year-over-year to $3.17. SEE surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has declined 2.8% to close the last trading session at $32.62.
SEE’s promising outlook is reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #2 in the Industrial – Packaging industry. To access additional ratings for SEE’s Growth, Momentum, Stability, and Sentiment, click here.
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SEE shares were trading at $32.85 per share on Friday afternoon, up $0.23 (+0.71%). Year-to-date, SEE has declined -9.06%, versus a 17.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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