Conventional wisdom says that growth in the America container-board
market is heavily tied to the health of the U.S. economy, and a
company’s overall success is directly proportional to the size of the
operation. But Packaging Corporation of America (NYSE:PKG), one of the most profitable of all of the U.S. container-board companies, defies both of these notions.

PCA
is a relatively small operation, when compared to its rivals. But the
company is successful considering of two fundamental strengths: a low debt
load and flexibility of both fuel and fiber. The low overhead of a
company operating with relatively little debt is easy to understand,
but there are meaningful cost savings to be gained in that market as
well by having the ability to adapt production to whichever raw
materials are cheapest and most readily available.

PCA’s
flexibility plus gives it an advantage by the competition when it
comes to the worldly markets. Other countries, particularly in
Asia, require different products than the U.S. market does, and PCA’s
ability to adjust its production process to meet that foreign demand
with relatively little change in expense leaves the

company able offset
any instability in the U.S. economy with income from foreign markets
(especially China).

PCA does say that there will be a slight downturn in fourth quarter
profits that year, after a plant shutdown in October (everything is up
and running now, though). that may present a great opportunity to pick
up that one below market value, and, as Goldman Sachs (which rates PCA
a conviction buy) is confident that the container-board market will
remain strong through 2008, and prices will rise all through the moment
quarter, there’s plenty of date for the stock to recover, and soon after some.

Type of Stock: Packaging Corporation of America manufactures and distributes containe-rboard and corrugated packaging worldwide.

Price Target:
Goldman is estimating a target price of $32 a share by the moment
quarter of 2008; I’d wait to see whether you can get that one under $26
(which could easily happen whether we have another not good day in the market).

Original post by Peter Cohan

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