Smurfit WestRock Plc: Ready To Rock

Merger and Financial Overview - The combined entity Smurfit WestRock (NYSE:SW, OTCPK:SMFKY) (OTCPK:SMFTF) will start reporting combined financials from Q3 2024, positioning itself as a global leader in sustainable packaging [1] - WestRock's Q2 2024 EBITDA reached $669 million, an 8% sequential quarterly increase but below the consensus estimate of $730 million [2] - Smurfit Kappa's Q2 2024 turnover decreased by $107 million to $2.96 billion, with EBITDA at $480 million and an adjusted margin of 16.2% [2] Industry and Market Position - The paper industry is at the cycle's trough, with expectations of price improvements and margin expansion driven by increased box pricing and volume growth [3] - Smurfit WestRock is trading at a significant discount compared to peers, with a 2024 P/E of 14.2x versus the sector average of 17x, indicating potential upside [5] Synergies and Integration - The merger is expected to yield $400 million in synergies, primarily from cost savings, with potential for further upside through targeted mill improvements and integration opportunities [3] - Smurfit Kappa's management has a strong track record in Europe, which could facilitate smoother integration of WestRock's assets [3] Financial Projections and Valuation - Smurfit WestRock's 2024 CAPEX is projected to be between $2.2-2.5 billion, with sales forecasted at $31.7 billion and adjusted EBITDA at $5.09 billion [4] - The combined entity is expected to achieve a 2024 net income of approximately $1.5 billion, with an EPS of $3.2 [4] - Applying a P/E of 17x, the target price for Smurfit WestRock is derived at $54.4 per share, representing a 20% upside from the current stock price [5] CEO and Analyst Insights - CEO Tony Smurfit highlighted the industry's recovery phase and the potential for price increases to offset higher recovered fiber costs and lower box prices [3] - The analyst call reinforced confidence in the company's outlook, supporting the buy rating despite limited earnings visibility [8]