NEW YORK (TheStreet) -- Analysts at BMO Capital raised their rating on MeadWestvaco Corp. (MWV) to "outperform" from "market perform" on Monday morning.

The firm said it upgraded its rating on the global packaging company as it believes the Rock-Tenn (RKT) deal makes strategic sense.

Last week, the two companies announced they will merge in a transaction with a combined equity value of $16 billion.

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BMO upped its price target on MeadWestvaco to $59 from $55.

"The two business portfolios are largely complementary and should face limited regulatory hurdles. The combined company will emerge with one of the industry's strongest balance sheets," BMO said.

"Combining MeadWestvaco's well-capitalized asset base with Rock-Tenn's disciplined management should unlock value," the firm added.

Shares of MeadWestvaco closed at $50.28 on Friday afternoon. 

Separately, TheStreet Ratings team rates MEADWESTVACO CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate MEADWESTVACO CORP (MWV) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.2%. Since the same quarter one year prior, revenues slightly increased by 4.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The current debt-to-equity ratio, 0.58, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.06, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has significantly increased by 68.36% to $298.00 million when compared to the same quarter last year. In addition, MEADWESTVACO CORP has also vastly surpassed the industry average cash flow growth rate of -1.03%.
  • Compared to its closing price of one year ago, MWV's share price has jumped by 42.25%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • MEADWESTVACO CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, MEADWESTVACO CORP reported lower earnings of $1.52 versus $1.78 in the prior year. This year, the market expects an improvement in earnings ($2.19 versus $1.52).
  • You can view the full analysis from the report here: MWV Ratings Report

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