Aggressive Growth: Graphic Packaging Holding

| About: Graphic Packaging (GPK)
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Graphic Packaging Holding Company (NYSE:GPK) has witnessed significant upward earnings estimate revisions over the past couple of months, following its solid third-quarter results. With a long-term expected earnings growth rate of 17.0%, a focus on cost reduction, new product development and acquisition initiatives to expand its geographic footprint, this Zacks #1 Rank (Strong Buy) packaging solutions provider appears to be a good possibility for aggressive-growth investors.

A Remarkable Q3

On October 25, 2012, Graphic Packaging reported third-quarter earnings of 11 cents per share, beating the Zacks Consensus Estimate by 37.5% and advancing from last year by 22%. Earnings were driven by revenue growth and a strong operating performance.

Revenue rose 3% year over year to $1.1 billion, attributed to growth across all segments, favorable volume/mix, new product launches and market share gains. Revenue at the Paperboard Packaging segment increased 2% to $929 million. Flexible Packaging revenues increased 10% to $176 million, aided by the addition of Delta Natural Kraft, LLC and Mid-America Packaging, LLC.

On the profitability front, Graphic Packaging benefited from productivity enhancement, cost reduction initiatives, lower input costs and a strong manufacturing performance. Gross profit improved 22% year over year to $188 million with gross margin expanding 270 basis points to 17%. Adjusted operating profit increased 20% to $93 million. Adjusted EBITDA (Earnings before interest, tax, depreciation and amortization) was $170 million, up 12% year over year.

Earnings Estimates on the Rise

For 2012, the Zacks Consensus Estimate has advanced 2.9% in 60 days to 36 cents per share, as 6 of 7 estimates moved higher. This reflects a year-over-year increase of roughly 39.6%.

For 2013, the Zacks Consensus Estimate increased 4.8% in the same time on the back of 4 upward revisions out of 7 total estimates. This represents year-over-year growth of 20.9%.

Valuation Looks Attractive

Graphic Packaging is currently trading at a forward P/E of 17.25x, a 5% discount to the peer group average of 18.25x. The price-to-book ratio of 1.92x is a tad lower than the peer group average of 1.96x. Moreover, the price-to-sales ratio of 0.50x is below the peer group average of 0.65x.

Founded in 1992, Marietta, Georgia.-based Graphic Packaging, which has a market cap of roughly $2.5 billion, provides paperboard and integrated paperboard packaging solutions across the United States, Canada, Central/South America, Europe and Asia Pacific. It operates through two segments - Paperboard Packaging and Flexible Packaging. The Paperboard Packaging segment supplies paperboard cartons and carriers designed to protect and contain products such as food, detergents, paper products, beverages, and health and beauty aids. The Flexible Packaging segment's offerings include multi-wall bags, shingle wrap, plastic bags and film for building materials, retort pouches, medical test kits and batch inclusion bags.

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