Trade-Ideas: Packaging Corp Of America (PKG) Is Today's

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Packaging Corp of America ( PKG) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Packaging Corp of America as such a stock due to the following factors:

  • PKG has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $48.5 million.
  • PKG has traded 674,439 shares today.
  • PKG traded in a range 226.8% of the normal price range with a price range of $1.86.
  • PKG traded below its daily resistance level (quality: 5 days, meaning that the stock is crossing a resistance level set by the last 5 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on PKG:

Packaging Corporation of America manufactures and sells containerboard and corrugated packaging products in the United States, Europe, Mexico, and Canada. The stock currently has a dividend yield of 3.2%. PKG has a PE ratio of 17. Currently there are 8 analysts that rate Packaging Corp of America a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Packaging Corp of America has been 1.1 million shares per day over the past 30 days. Packaging Corp of America has a market cap of $6.7 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 1.45 and a short float of 1.3% with 1.71 days to cover. Shares are down 11.3% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Packaging Corp of America as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Containers & Packaging industry average. The net income increased by 0.8% when compared to the same quarter one year prior, going from $90.09 million to $90.80 million.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 0.4%. Since the same quarter one year prior, revenues slightly dropped by 0.4%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
  • PACKAGING CORP OF AMERICA reported flat earnings per share in the most recent quarter. 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, PACKAGING CORP OF AMERICA reported lower earnings of $3.99 versus $4.53 in the prior year. This year, the market expects an improvement in earnings ($4.49 versus $3.99).
  • Despite the current debt-to-equity ratio of 1.53, it is still below the industry average, suggesting that this level of debt is acceptable within the Containers & Packaging industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.29 is sturdy.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Containers & Packaging industry and the overall market, PACKAGING CORP OF AMERICA's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.

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