RBC Capital: This Dividend Stock Has Strong Growth Potential

Pactiv Evergreen Inc. (PTVE) is a manufacturer and distributor of fresh food service and food merchandising products and fresh beverage cartons in North America. The company operates through food service, food merchandising, and beverage merchandising segments.

Many analysts believe the U.S. economy is headed toward a recession. However, RBC Capital’s U.S. Equity Strategy Head Lori Calvasina has put the odds of avoiding recession at 60%. She believes that the economy will not only dodge a recession but stage a strong recovery by the end of the year.

RBC Capital’s analysts believe PTVE is a reliable dividend payer with solid growth potential. PTVE’s EPS and revenue for the first quarter ended March 31, 2022, surpassed analyst estimates. The revenue growth was driven by a 26% growth in price and mix and a 9% increase due to acquisitions.

RBC’s Arun Viswanathan said, “PTVE is executing well, and we see: strong price/cost realization, recovery in foodservice and food merchandising, deleveraging opportunities.”

“We may be early in the PTVE turnaround story, and there is still uncertainty on inflation, but we believe there is some conservatism to PTVE’s reaffirmed EBITDA guidance given the strong 1Q, improving labor challenges, and better working capital usage. We also find PTVE’s ESG profile attractive (increased fiber-based packaging, 65% recyclable and recycled content moving to 100% by 20230) and like the company-specific restructuring opportunities in Beverage Merchandising,” he added.

The company paid a quarterly dividend of $0.10 per share on June 15, 2022. PTVE’s four-year average dividend yield is 1.85%, and its current dividend translates to a 4.04% yield.

PTVE has declined 22% in price year-to-date and 35.7% over the past year to close the last trading session at $9.89.

Here's what could shape PTVE's performance in the near term:

Strategic Sale

On January 5, 2022, PTVE announced its entry into an agreement to sell its carton packaging and filling machinery businesses in China, Korea, and Taiwan to SIG Schweizerische Industrie-Gesellschaft GmbH. The transaction is expected to close in the second or third quarter of this year. The sale will help PTVE to focus on its North American business.

On March 29, 2022, the company completed the sale of a 50% stake in Naturepak Beverage Packaging Co. Ltd.

Robust Financials

PTVE’s net revenues increased 28% year-over-year to $1.49 billion in the first quarter ended March 31, 2022. The company’s adjusted EBITDA increased 136.3% year-over-year to $182 million. 

Its net income came in at $43 million, compared to a net loss of $14 million in the year-ago period. In addition, its EPS came in at $0.24, compared to a loss per share of $0.09 in the year-ago period.

Favorable Analyst Estimates

Analysts expect PTVE’s revenue for fiscal 2022 and 2023 to increase 15.7% and 1.4% year-over-year to $6.29 billion and $6.38 billion, respectively. Its EPS is also expected to increase 615.4% and 28% year-over-year to $0.93 and $1.19, respectively.

Mixed Valuation

In terms of forward non-GAAP PEG, PTVE's 0.09x is 91.8% lower than the 1.11x industry average. In addition, its 0.96x forward EV/S is 28.2% lower than the industry average of 1.33x. However, its forward non-GAAP P/E of 10.74x is 2% higher than the 10.52x industry average. Also, the stock's 15.77x forward EV/EBIT is 76.1% higher than the 8.95x industry average.

POWR Ratings Show Promise

PTVE has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PTVE has an A grade for Growth and Sentiment, in sync with its favorable analyst estimates and robust financials.

It has a C grade for Value, consistent with its mixed valuation.

PTVE is ranked #10 out of 21 stocks in the A-rated Industrial – Packaging industry. Click here to access PTVE’s ratings for Momentum, Stability, and Quality.

Bottom Line

RBC Capital analysts are of the view that PTVE is an excellent defensive play in these uncertain macroeconomic conditions as it pays dividends and has solid growth potential.

The company recently sold its non-core businesses to focus on its North American business. This is expected to drive the company’s growth in the long term. Also, given PTVE’s robust financials and favorable analyst estimates, it could be wise to buy the stock now.

How Does Pactiv Evergreen Inc. (PTVE) Stack Up Against its Peers?

PTVE has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Industrial - Packaging stocks with an A (Strong Buy) and B (Buy) rating: Veritiv Corporation (VRTV), Smurfit Kappa Group Plc (SMFKY), and WestRock Company (WRK).

PTVE shares were unchanged in premarket trading Tuesday. Year-to-date, PTVE has declined -20.37%, versus a -20.08% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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