Clearwater Paper: Margin Improvement And Growing Preference For Sustainable Packaging

Core Viewpoint - Clearwater Paper Corporation (CLW) is positioned for long-term growth in the eco-conscious market, despite experiencing volatile revenue growth and slightly underperforming compared to peers. The acquisition of Augusta is expected to enhance CLW's capacity and profitability margins, making it a compelling investment opportunity [1]. Financial Performance - CLW has shown volatile revenue growth, with FY23 experiencing little to no year-over-year growth. The paperboard volume has declined due to weaker demand, but this has been offset by stronger demand for private-label consumer products [3][4]. - In FY22, CLW achieved a significant revenue growth of 17.35% due to price increases aimed at combating inflation [4]. - Profitability margins have improved, with FY23 adjusted EBITA rising from 11% to 13%, totaling $281 million. The tissue segment notably doubled its adjusted EBITDA from $74.2 million to $150.05 million, while the pulp and paperboard segment saw a slight decline [5]. Segment Analysis - CLW's business is divided into Pulp & Paperboard and Consumer Products, each contributing approximately 50% to total revenue in FY23. The main products include Paperboard and Retail Tissue, with CLW being a leading manufacturer of Solid Bleached Sulfate (SBS) paperboard, accounting for about 16% of US production capacity in 2023 [8]. - The demand for recycled-based packaging is strong, particularly for SBS, which is an environmentally friendly alternative to plastic. This trend is supported by various state bans on plastic usage [9]. Strategic Developments - CLW has finalized the acquisition of Augusta, which adds approximately 600,000 tonnes of paperboard capacity. This acquisition is expected to enhance CLW's competitive positioning and contribute an estimated $140-$150 million of EBITDA by 2026, increasing paperboard capacity by around 70% [15]. - The company is facing potential competition from Billerud AB, which is investing in Folding Box Board (FBB) production in North America. This could challenge CLW's market share if Billerud can offer competitive pricing [13][14]. Valuation Insights - CLW's P/E ratio is currently at 14.42x, higher than the peers' median of 11.99x but lower than its 5-year average of 17.33x. The market estimates for CLW's revenue are $2.29 billion for 2024 and $2.67 billion for 2025, indicating a positive growth outlook [18]. - The target price for CLW in 2025 is projected at $58.39, reflecting a 12% upside potential based on the assigned P/E ratio [18].