5. Graphic Packaging Holding Company (NYSE:GPK)
Number of Hedge Fund Holders: 28
Eminence Capital’s Stake: $247,071,933
Graphic Packaging Holding Company (NYSE:GPK) designs, produces, and sells consumer packaging products to brands in food, beverage, foodservice, household, and other consumer products. In the past few months, the company has reported impressive growth in sales numbers along with a steady improvement in margins. In the six years spanning 2017 to 2023, the company managed to double sales to around $9.4 billion. As a packaging firm primarily focused on food, the management has slowly transitioned to a sustainable packaging model that is likely to pay dividends in the long term. As the earnings of the firm continue to grow, there is room for the valuation multiples of the firm to expand as well, positioning it nicely as a key Sandler bet in the coming months.
As Graphic Packaging Holding Company (NYSE:GPK) invests in operations, analysts expect cash flow generation to remain a cause of concern moving forward. However, this seems to be a short-term problem only as operating profits remain solid. Last year, the company grew operating profits from $906 million to $1.17 billion. The earning margins are growing as well. The adjusted EBITDA margins for the firm improved to 19.9% in 2023 from 16.9% in 2022, indicating enhanced profitability and operational efficiency.
In its Q2 2023 investor letter, L1 Capital, an asset management firm, highlighted a few stocks and Graphic Packaging Holding Company (NYSE:GPK) was one of them. Here is what the fund said:
“As a child, I am sure you tossed a coin and called out “Heads I win, tails you lose!” – seemed witty at the time. At today’s share price we believe Graphic Packaging Holding Company (NYSE:GPK) presents almost as good an investment opportunity – more like “Heads we win, tails we don’t lose!” We outlined the investment case for Graphic Packaging International in our June 2021 Quarterly Report and the substance of our views then remain current today. Right now the market is concerned about weakness in demand for paperboard packaging and medium-term increases in supply of paperboard. Both concerns are valid, but in our view are overly reflected in Graphic Packaging International’s share price.
Graphic Packaging International supplies the boxes used by food, beverages, household and personal care companies. Normally demand growth is modest but relatively stable, supported by a continuous environmentally driven shift away from plastic packaging, but it is not macro immune. Recently a number of consumer staples companies have reported weakening demand, as well as some destocking by retailers who are looking to better match demand with their inventory levels. These issues will impact Graphic Packaging International, but to a modest extent and only for a temporary period. Graphic Packaging International also benefits from supplying packaging for house brand products which are benefitting from trade-down by cost conscious consumers…” (Read more)
