WestRock stock is a clear buy at this price (NYSE: WRK)

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Along with our follow-up note on International Paper (IP), we decided to analyze the (NYSE: WRK) implications after the FedEx (FDX) earnings scare. As of Friday, Wall Street was already depressed due to Federal Reserve interest rate decision is expected in two days, but FedEx’s preliminary results were a wake-up call for the global economy. WestRock and the entire paper segment suffered a massive capital decline. The Tennessee-based transportation giant’s results were well below consensus estimates, and the company also withdrew its full-year profit forecast due to the economic slowdown. The warning comes as consumers around the world grapple with higher costs for basic necessities like food and fuel. As already explained in the IP analysis, the WestRock share price decline was further depressed by The Jefferies Notein which the analyst was not supportive of the overall industry due to 1) a continued decline in containerboard demand, 2) customer inventory levels, and 3) fear of recession based on lower consumer spending.

WestRock stock price trend (last 5 days)

WestRock stock price trend (last 5 days) (Yahoo Finance)

So what’s the next step?

In the third quarter, WestRock delivered a strong run of numbers with record sales and EBITDA. After raising the company’s guidance during the Q2 presentation, management once again confirmed its outlook. In our last paragraph, we forecast EBITDA of $3.5 billion for the end of the year, estimating the low range of WestRock’s guidance emphasizing the resilience and profitability of the business.

Orientation WestRock

WestRock Directions (WestRock Q3 Results)

As already shown in our IP analysis, containerboard demand was weaker in July, but was already up on a month-to-month basis in August. Additionally, WestRock’s main market is the United States (even taking into account the latest Mexican acquisition) and consumer demand is not suffering like in Europe. Due to the development of energy prices in Europe, WestRock could even increase its export demand and gain market share from the Old Continent. Despite weaker demand for containerboard in July, during Q&A presentations in early August, WestRock was positive for the full year and price increases were also expected for a continued impact on raw materials.

Conclusion and evaluation

During our hedging initiation, we analyzed WestRock’s past challenges, and we were even more confident after analyzing the day for investors. In the past, the company was involved in too many acquisitions, however, with the change of CEO in 2021, we knew that WestRock was embarking on a new cost reduction program aimed at improving the profitability of the company. The recent closure of the Panama City plant is just one tangible example. Additionally, WestRock has no exposure in Russia. Jefferies analyst Philip Ng wasn’t positive on long-term structural growth, but we think a 2% terminal growth rate is a very good indicator of population growth. The growth of e-commerce, ESG fund selection, the shift from plastic to paper thanks to customers’ environmental awareness, and plastic bans are, in fact, too many positive trends to ignore (and support company valuation). If we add the new divisional split in WestRock’s presentation, it will grant “greater transparency around its margin structure, now and in the future“. We don’t need to say more. Our buy rating is confirmed.

WestRock Q3 Price Delta in New Reporting Division

WestRock Q3 Price Delta in New Reporting Division (WestRock Q3 Results)

Eleanor C. William