Yet Another Boring Growth Play!

by Lawrence Meyers | July 20, 2012 12:05 pm

Peter Lynch was so right. There are so many stocks out there that I would overlook just because they sound really boring, and have equally boring businesses. I’ve found several the past week and here’s another: Packaging Corp of America (NYSE:PKG[1]).

Get your espresso ready. I’m about to describe what the company does.

Packaging Corp produces and sells containerboard and corrugated products! Cardboard! But wait, the company also offers meat boxes and wax-coated boxes for the agricultural industry! Would you believe it was founded just after the Civil War?

The company just reported a pretty decent quarter — 5% production growth and 7% increase in shipments helped push revenue up 7%. Operating income was up 23%, thanks to some good expense control and lower costs on raw materials. Net income rose almost 12%.

Although the economy has weighed on the company’s bottom line for a few years, things are picking up again, with net income expected to rise from $1.61 per share to $1.95 this year, and to $2.31 next year. Analysts project 9.25% growth over five years.

It’s not like the company doesn’t have competition, either. It does — in the form of mega-paper companies like International Paper (NYSE:IP[2]), Rock-Tenn Co. (NYSE:RKT[3]) and KapStone (NYSE:KS[4]). Packaging Corp is a comparatively niche player. So while it stands firmly in the short-term growth category and long-term stalwart category, the company might want to think about how to capture some international market share.

The question is how PKG will manage it. Free cash flow is nice, but only amounts to about $85 million in the TTM, and about a quarter of that is paid out via its 3.3% dividend. The company also took on a big chunk of debt recently, sending its total debt load north of $800 million.

I suspect management is content with its trajectory, seeking to scoop up smaller operations for the right price, and tending to its knitting. With 150 years of experience behind the company, management doesn’t appear to be in any rush to upset the cardboard box loaded with the record revenue it just booked.

I think this is a solid play for dividend hunters who are seeking a little bit of capital gains as well. It’s not a blockbuster, but boring companies don’t need to be to keep one happy.

As of this writing, Lawrence Meyers[5] did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc.[6], which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at[7]. He also has written two books[8] and blogs about public policy[9], journalistic integrity[10], popular culture[11] and world affairs[12].

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  4. KS:
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  6. PDL Capital, Inc.:
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