Expect Pressure from Energy Costs and FX on Packaging, Paper/Forest Stocks – BofA

By Sam Boughedda

In a note on packaging and paper/forest products on Thursday, BofA Securities analysts upgraded Amcor plc (NYSE:) and Sonoco (NYSE:) to Buy from Underperform and lowered Greif Inc (NYSE:) and Boise Cascade (NYSE:) to Underperform from Buy and Neutral, respectively, while moving Avery Dennison (NYSE:) to Neutral from Buy.

“Packaging has already incorporated much bad Europe, energy, and foreign exchange (FX) news. Paper/Forest Products (PFP) is also inexpensive but we’re cautious ahead of looming price declines,” wrote the analysts.

The analysts clarified that BofA is moving Sonoco to Buy on its “typically defensive” performance in recessions and continued positive price/cost, while Amcor is upgraded Buy on its defensiveness, while SLVM is a Buy on its value and remaining paper supply constraints.

Regarding the downgrades, they explained that Greif was moved to Underperform to balance the firm’s upgrade of Sonoco “as its portfolio (and valuation) can have more cyclicality.” Boise Cascade was downgraded to Underperform based on a modest upside to BofA’s price target and housing risk. For Avery, the analysts stated it “is one of our higher quality companies but we see limited upside given our forecasts and apparel headwinds.”

“Expect continued pressure from energy costs, particularly in Europe, and FX as we lower estimates another ~3% in Packaging and ~4% in PFP since our last update. We are 5% to 8% below consensus in packaging and PFP for 2023. Paper/forest cos. are relatively unaffected by FX but rather the impact is felt in trade flow,” remarked the analysts.

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