WestRock Co (WRK, Financial) has experienced a notable dip by -3.22% in its stock price recently, contrasting with a 15.17% gain over the past three months. With a concerning Loss Per Share of 6.45, investors are questioning whether the stock is modestly undervalued. This article delves into the valuation analysis of WestRock Co (WRK), aiming to provide a clearer picture of its market position and future prospects.
Company Introduction
WestRock Co (WRK, Financial), a leading manufacturer of corrugated and consumer packaging, has been a prominent player since the merger of RockTenn and MeadWestvaco in 2015. As the largest North American producer of solid bleached sulfate and the second-largest producer of containerboard, WestRock Co's influence in the production of shipping containers is significant. Despite the current stock price of $36.69, which reflects a market cap of $9.40 billion, the GF Value estimates the fair value at $48.22, suggesting that the stock is modestly undervalued.
Summarize GF Value
The GF Value is a proprietary metric that reflects the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price significantly deviates from the GF Value Line, it indicates a potential misvaluation. For WestRock Co (WRK, Financial), the GF Value suggests that the stock is modestly undervalued, hinting at a higher long-term return potential compared to its business growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of capital loss. WestRock Co's financial strength can be assessed by examining metrics like cash-to-debt ratio and interest coverage. Currently, the company's cash-to-debt ratio stands at 0.05, which is lower than 88.01% of its peers in the Packaging & Containers industry. This positions WestRock Co's financial strength at a 4 out of 10, suggesting room for improvement.
Profitability and Growth
Profitability is a key indicator of a company's financial health, and WestRock Co has maintained profitability for 7 out of the past 10 years. With an annual revenue of $20.30 billion and a Loss Per Share of $6.45, the company's operating margin stands at 6.03%, ranking it in the middle of the industry. The profitability rank of 6 out of 10 reflects a fair performance.
However, the company's growth prospects appear less optimistic, with an average annual revenue growth of 5.3%, which is below industry standards. Additionally, the 3-year average EBITDA growth rate of -43.9% places WestRock Co among the lower echelons of its industry peers.
ROIC vs WACC
Evaluating a company's value creation can be done by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). WestRock Co's ROIC over the past 12 months is 4.55, which unfortunately falls short of its WACC of 8.27, indicating that the company may not be generating sufficient returns on its investments.
Conclusion
After a thorough analysis, WestRock Co (WRK, Financial) appears to be modestly undervalued. While the company's financial condition could be stronger and its profitability is only fair, its current market price does not fully reflect its potential value. The growth trajectory of WestRock Co is less than ideal, lagging behind a significant portion of the industry. For a deeper understanding of WestRock Co's financials, interested investors can explore the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
