KapStone Paper and Packaging Corp Valuation – August 2018 $KS

Company Profile (excerpt from Reuters): KapStone Paper and Packaging Corporation, incorporated on April 15, 2005, is a producer of containerboard and the kraft paper in North America. The Company operates through two segments: Paper and Packaging, and Distribution. The Paper and Packaging segment manufactures and sells a range of containerboard, corrugated products and specialty paper for industrial and consumer markets. The Distribution segment, which operates under the Victory and Golden State Container trade names, provides its customers packaging solutions and services and distributes corrugated packaging materials and other specialty packaging products, which include stretch film, void fill, carton sealing tape and other specialty tapes. It produces a range of products ranging from basic corrugated shipping containers to specialized packaging. It produces packaging for fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products.


Downloadable PDF version of this valuation:

ModernGraham Valuation of KS – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,356,767,670 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.24 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 117.27% Pass
6. Moderate PEmg Ratio PEmg < 20 19.23 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.83 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.79 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $1.78
MG Growth Estimate 7.26%
MG Value $41.08
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $25.87
MG Value based on 0% Growth $15.16
Market Implied Growth Rate 5.37%
Current Price $34.31
% of Intrinsic Value 83.52%

KapStone Paper and Packaging Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.2 in 2014 to an estimated $1.78 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 5.37% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into KapStone Paper and Packaging Corp. revealed the company was trading above its Graham Number of $23.3. The company pays a dividend of $0.4 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 19.23, which was below the industry average of 21.21, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.79.

KapStone Paper and Packaging Corp. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.79
Graham Number $23.30
PEmg 19.23
Current Ratio 2.24
PB Ratio 2.83
Current Dividend $0.40
Dividend Yield 1.17%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $894,068,000
Total Current Liabilities $399,183,000
Long-Term Debt $1,382,968,000
Total Assets $3,388,143,000
Intangible Assets $1,002,598,000
Total Liabilities $2,173,644,000
Shares Outstanding (Diluted Average) 100,044,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.06
Dec2017 $2.47
Dec2016 $0.88
Dec2015 $1.09
Dec2014 $1.76
Dec2013 $1.32
Dec2012 $0.65
Dec2011 $0.66
Dec2010 $0.69
Dec2009 $1.15
Dec2008 $0.29
Dec2007 $0.38
Dec2006 $0.04
Dec2005 $0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.78
Dec2017 $1.60
Dec2016 $1.16
Dec2015 $1.23
Dec2014 $1.20
Dec2013 $0.91
Dec2012 $0.70
Dec2011 $0.69
Dec2010 $0.64
Dec2009 $0.54
Dec2008 $0.21
Dec2007 $0.14
Dec2006 $0.02
Dec2005 $0.01

Recommended Reading:

Other ModernGraham posts about the company

5 Best Stocks for Value Investors This Week – 2/25/17
KapStone Paper and Packaging Corp Valuation – Initial Coverage $KS

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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