PKG
PKG
Hold 2026-03-31
Model
DCF
Price at Report
$209.04
Base IV
$199.28
Bear IV
$87.11
Bull IV
$386.05
Entry Zone: 91-183 · Sell Above: 328
Bore Family Office
Valuation Report — Packaging Corporation of America (PKG) • March 31, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 8.23% • Current Price: $209.04
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Packaging Corporation of America is one of the largest producers of containerboard and corrugated packaging products in the United States, with ~16,800 employees. The company operates an integrated model: manufacturing containerboard (linerboard and corrugating medium) at its mills, then converting it into corrugated containers and specialty packaging at its converting plants. PKG serves diverse end markets including food & beverage, industrial goods, e-commerce, and consumer products.
FY2025 revenue grew 7.2% to $8.99B with EBITDA of $1.76B (19.6% margin). A major acquisition completed in FY2025 expanded the asset base by 21% (to $10.7B) and is expected to drive revenue to $10.3B+ in FY2026 (+14.4%). Net debt increased to $3.76B (2.1x EBITDA) to fund the acquisition but remains manageable. PKG's competitive advantages include its integrated mill-to-box model, significant containerboard capacity, and long-standing customer relationships in defensive packaging end markets.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Packaging (Containerboard) | $8,200M | 91% | +8.0% | — | Corrugated containers, containerboard, specialty packaging; core business |
| Paper | $789M | 9% | +1.0% | — | Uncoated freesheet paper; mature/declining segment; office paper market shrinking |
| Blended Growth Rate | — | 100% | +7.4% | — | Weighted avg across segments |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 16.8% | ≥12% strong |
| FCF Margin | 8.1% | 5–10% adequate |
| Debt / EBITDA | 2.1x | 2–4x moderate |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Expanding | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $7,730 | $8,478 | $7,802 | $8,383 | $8,989 |
| Rev YoY Growth | — | +9.7% | -8.0% | +7.4% | +7.2% |
| Gross Margin | 24.2% | 24.7% | 21.8% | 21.3% | 21.0% |
| EBITDA ($M) | $1,659 | $1,878 | $1,593 | $1,627 | $1,760 |
| EBITDA Margin | 21.5% | 22.2% | 20.4% | 19.4% | 19.6% |
| Operating Income ($M) | $1,241 | $1,421 | $1,075 | $1,101 | $1,107 |
| Operating Margin | 16.1% | 16.8% | 13.8% | 13.1% | 12.3% |
| Net Income ($M) | $841 | $1,030 | $765 | $805 | $774 |
| Net Margin | 10.9% | 12.1% | 9.8% | 9.6% | 8.6% |
| EPS (diluted) | $8.83 | $11.03 | $8.48 | $8.93 | $8.58 |
| Free Cash Flow ($M) | $489 | $671 | $845 | $522 | $729 |
| Annual DPS | $4.000 | $4.750 | $5.000 | $5.000 | $5.000 |
| Total Debt ($M) | $2,732 | $2,793 | $3,173 | $2,772 | $4,365 |
💹 Capital Return & Share Count Analysis
Net Share Change
-4.6% (2021→2025)
📉 Net reduction — buybacks exceed issuances
EPS Amplification
EPS grew -2.8% vs net income -8.0% over the period — +5.1pp of EPS growth amplified by share reduction.
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2021 | 93.5M | — | $195 | 1.0% |
| 2022 | 89.7M | -4.1% | $380 | 2.0% |
| 2023 | 89.6M | -0.1% | — | — |
| 2024 | 89.9M | +0.3% | — | — |
| 2025 | 89.2M | -0.8% | — | — |
Share count declined from 93.5M (2021) to 89.2M (2025), a 4.6% reduction. Most buybacks occurred in 2021-2022 ($575M total), with essentially zero repurchases in 2023-2025 as capital was redirected toward the major FY2025 acquisition. Buyback yield is currently -0.11% (slight dilution from stock compensation). Capital allocation priority has clearly shifted to M&A and deleveraging — expect buybacks to resume only after net debt returns to the 1.5-2.0x EBITDA target range (likely FY2027-2028).
⚙️ WACC Build (DCF)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.25% | 10-yr US Treasury yield |
| Beta (β) | 0.920 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 9.31% | Ke = Rf + β × ERP |
| Pre-Tax Cost of Debt | 4.50% | Interest exp / gross debt |
| After-Tax Cost of Debt (Kd) | 3.56% | × (1 − 21%) |
| Weight Equity (We) | 81.2% | Mkt cap $0.0B |
| Weight Debt (Wd) | 18.8% | Gross debt $0.0B |
| WACC | 8.23% | DCF discount rate |
📈 DCF Scenarios
$87
🔴 Bear
$199
📊 Base
$386
🚀 Bull
$209.04
Current Price
$238
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 4.0% | 2.5% | 2.0% | 9.23% | $87 | ▼58.3% |
| 📊 Base | 12.0% | 5.0% | 2.5% | 8.23% | $199 | ▼4.7% |
| 🚀 Bull | 17.0% | 7.0% | 3.0% | 7.23% | $386 | ▲84.7% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 4.0% | Stage 2: 2.5% | Terminal: 2.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.75B | $0.69B | $0.69B |
| Year 2 ✦ | Stage 1 | $0.80B | $0.67B | $1.36B |
| Year 3 ✦ | Stage 1 | $0.84B | $0.64B | $2.00B |
| Year 4 ✦ | Stage 1 | $0.87B | $0.61B | $2.61B |
| Year 5 ✦ | Stage 1 | $0.90B | $0.58B | $3.19B |
| Year 6 | Stage 2 | $0.92B | $0.54B | $3.73B |
| Year 7 | Stage 2 | $0.95B | $0.51B | $4.24B |
| Year 8 | Stage 2 | $0.97B | $0.48B | $4.72B |
| Year 9 | Stage 2 | $0.99B | $0.45B | $5.17B |
| Year 10 | Stage 2 | $1.02B | $0.42B | $5.59B |
| Terminal | — | TV=$14.4B | PV(TV)=$5.9B (52% of EV) | EV=$11.5B |
| Intrinsic Value | — | — | EV $11.5B − Net Debt → Equity / Shares | $87 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (9.23%) to get its present value. After Year 10, FCF grows at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $14.4B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $5.9B). Enterprise Value = PV of FCFs ($5.6B) + PV of TV ($5.9B) = $11.5B. Subtracting net debt gives equity value of $7.8B, divided by shares outstanding = $87 per share.
Base Scenario
Stage 1: 12.0% | Stage 2: 5.0% | Terminal: 2.5%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.93B | $0.85B | $0.85B |
| Year 2 ✦ | Stage 1 | $1.02B | $0.87B | $1.72B |
| Year 3 ✦ | Stage 1 | $1.13B | $0.89B | $2.61B |
| Year 4 ✦ | Stage 1 | $1.20B | $0.87B | $3.49B |
| Year 5 ✦ | Stage 1 | $1.28B | $0.86B | $4.35B |
| Year 6 | Stage 2 | $1.34B | $0.84B | $5.19B |
| Year 7 | Stage 2 | $1.41B | $0.81B | $6.00B |
| Year 8 | Stage 2 | $1.48B | $0.79B | $6.78B |
| Year 9 | Stage 2 | $1.56B | $0.76B | $7.55B |
| Year 10 | Stage 2 | $1.63B | $0.74B | $8.29B |
| Terminal | — | TV=$29.2B | PV(TV)=$13.3B (62% of EV) | EV=$21.5B |
| Intrinsic Value | — | — | EV $21.5B − Net Debt → Equity / Shares | $199 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (8.23%) to get its present value. After Year 10, FCF grows at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $29.2B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $13.3B). Enterprise Value = PV of FCFs ($8.3B) + PV of TV ($13.3B) = $21.5B. Subtracting net debt gives equity value of $17.8B, divided by shares outstanding = $199 per share.
✦ Year-by-year analyst consensus FCF estimates (Base scenario)
Bull Scenario
Stage 1: 17.0% | Stage 2: 7.0% | Terminal: 3.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $1.05B | $0.98B | $0.98B |
| Year 2 ✦ | Stage 1 | $1.20B | $1.04B | $2.02B |
| Year 3 ✦ | Stage 1 | $1.38B | $1.12B | $3.14B |
| Year 4 ✦ | Stage 1 | $1.50B | $1.13B | $4.28B |
| Year 5 ✦ | Stage 1 | $1.60B | $1.13B | $5.41B |
| Year 6 | Stage 2 | $1.71B | $1.13B | $6.53B |
| Year 7 | Stage 2 | $1.83B | $1.12B | $7.66B |
| Year 8 | Stage 2 | $1.96B | $1.12B | $8.78B |
| Year 9 | Stage 2 | $2.10B | $1.12B | $9.90B |
| Year 10 | Stage 2 | $2.24B | $1.12B | $11.01B |
| Terminal | — | TV=$54.6B | PV(TV)=$27.2B (71% of EV) | EV=$38.2B |
| Intrinsic Value | — | — | EV $38.2B − Net Debt → Equity / Shares | $386 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (7.23%) to get its present value. After Year 10, FCF grows at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $54.6B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $27.2B). Enterprise Value = PV of FCFs ($11.0B) + PV of TV ($27.2B) = $38.2B. Subtracting net debt gives equity value of $34.4B, divided by shares outstanding = $386 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 6.2% | $275 | $302 | $336 | $382 | $444 |
| 6.7% | $242 | $263 | $289 | $322 | $366 |
| 7.2% | $216 | $232 | $252 | $277 | $309 |
| 7.7% | $193 | $207 | $222 | $242 | $266 |
| 8.2% | $174 | $185 | $198 | $213 | $232 |
| 8.7% | $158 | $167 | $177 | $190 | $204 |
| 9.2% | $144 | $151 | $160 | $170 | $182 |
| 9.7% | $131 | $138 | $145 | $153 | $163 |
| 10.2% | $120 | $126 | $132 | $139 | $147 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | EV/EBITDA | P/E | FCF Yield | EBITDA Margin | Note |
|---|---|---|---|---|---|
| PKG (current) | 12.7x | 24.4x | 3.5% | 19.6% | Recent acquisition; elevated leverage |
| IP (Intl Paper) | 10.8x | 18.5x | 4.2% | 15.2% | Largest US containerboard; ongoing restructuring |
| WRK (WestRock) | 9.5x | 15.2x | 5.8% | 13.8% | Merged w/ Smurfit; peer comp limited |
| GPK (Graphic Pkg) | 10.2x | 17.8x | 4.5% | 17.3% | Consumer packaging focus; folding carton leader |
| SEE (Sealed Air) | 11.5x | 22.0x | 3.8% | 20.5% | Food & protective packaging; similar margins |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $5.000 |
| Current Yield | 2.36% |
| Consecutive Growth Years | 0 |
| 1-yr DPS CAGR | +0.0% |
| 3-yr DPS CAGR | +1.7% |
| 5-yr DPS CAGR | +5.7% |
| 10-yr DPS CAGR | — |
| Payout Ratio (DPS/EPS) | 58.3% |
| FCF Payout Ratio | 61.0% |
| Sustainability Verdict | Safe |
PKG's $5.00 dividend is well-covered at a 58% payout ratio and 61% FCF payout. The dividend has been flat since mid-2022 ($1.25/qtr) as management directed capital toward the FY2025 acquisition. With net debt now elevated at $3.76B (2.1x EBITDA), the priority is deleveraging before dividend increases resume.
The dividend is sustainable through cycle — even at the FY2024 FCF trough of $522M, dividends ($446M) were covered at 1.17x. As acquisition synergies drive FCF toward $1B+, expect dividend growth to resume in FY2027-2028 once leverage returns to the 1.5-2.0x target range. Buybacks are essentially paused (yield -0.11%).
The dividend is sustainable through cycle — even at the FY2024 FCF trough of $522M, dividends ($446M) were covered at 1.17x. As acquisition synergies drive FCF toward $1B+, expect dividend growth to resume in FY2027-2028 once leverage returns to the 1.5-2.0x target range. Buybacks are essentially paused (yield -0.11%).
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $8.83 | — | — | — | Actual |
| 2022 | $11.03 | — | — | — | Actual |
| 2023 | $8.48 | — | — | — | Actual |
| 2024 | $8.93 | — | — | — | Actual |
| 2025 | $8.58 | — | — | — | Actual |
| 2026 | $9.99 | $10.95 | $11.97 | 14 | Estimate |
| 2027 | $10.46 | $12.33 | $14.35 | 13 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $7.7B | — | — | — | Actual |
| 2022 | $8.5B | — | — | — | Actual |
| 2023 | $7.8B | — | — | — | Actual |
| 2024 | $8.4B | — | — | — | Actual |
| 2025 | $9.0B | — | — | — | Actual |
| 2026 | $9.8B | $10.3B | $10.7B | 14 | Estimate |
| 2027 | $10.1B | $10.7B | $11.3B | 13 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $238.00 | Range $205–$270
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Michael Roxland | Truist Securities | Strong Buy | $270 | +29.2% |
| Anojja Shah | UBS | Hold | $235 | +12.4% |
| Gabe Hajde | Wells Fargo | Buy | $234 | +11.9% |
| Anthony Pettinari | Citigroup | Hold | $227 | +8.6% |
💡 Investment Thesis
- Acquisition-Driven Growth Inflection: The FY2025 acquisition adds significant scale — FY2026 revenue expected to jump 14.4% to $10.3B. Analyst consensus projects EPS growth of 28% to $10.95 in FY2026 as synergies materialize. This is the highest growth phase in PKG's recent history.
- Integrated Mill-to-Box Model: PKG's vertical integration from containerboard production through converting operations provides cost advantages and supply chain control that pure-play converters cannot match.
- Defensive End Markets: Corrugated packaging demand is tied to GDP growth, e-commerce volumes, and food/beverage production — all relatively stable. Packaging is a recurring, non-discretionary expense for PKG's customers.
- Strong FCF Generation: $729M FCF in FY2025 with margin expansion expected as acquisition synergies are realized. FCF should comfortably exceed $1B by FY2027, supporting debt paydown, dividend maintenance, and potential increases.
- Key Risk — Leverage & Integration: Net debt jumped to $3.76B (2.1x EBITDA) from the acquisition. If integration stumbles or containerboard pricing weakens during a recession, deleveraging could be slower than expected. The flat dividend since mid-2022 reflects capital being directed toward growth investments.
⚖️ DCF Verdict: Hold — Packaging Corporation of America (PKG)
Current price: $209.04 | Analyst Avg PT: $238.00
$87
🔴 Bear
$199
📊 Base
$386
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$183 | Begin position |
| Tier 2 — Add | ≤$143 | Add on weakness |
| Tier 3 — Full | ≤$91 | Full allocation |
| Sell Alert | ≥$328 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
PKG at $209 is an Accumulate with a Base DCF target of ~$230-240. The stock trades at 19.4x forward earnings (FY2026E) — reasonable for a high-quality packaging company in a growth inflection from its recent acquisition. Analyst consensus of $238 (+14% upside) reflects the strong earnings ramp ahead.
The DCF model anchors to $729M FY2025 FCF with analyst-derived estimates projecting growth to $925M+ in FY2026 as acquisition synergies are realized. The key catalyst is margin expansion from integration — if FCF margins return to the 10%+ range, significant upside exists from current levels.
Action: Accumulate below $215. Add on pullbacks to $190-195 (16-17x forward EPS). Full position below $175 (52-week low zone). Take profits above $260 (approaches Bull case). Dividend is safe but flat — not a yield play.
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| FCF Base & Acquisition Impact | FY2025 FCF of $729M is the starting base. FCF margin was 8.1% (below the 2023 peak of 10.8%) due to elevated integration costs and acquisition-related expenses. Analyst FCF estimates project recovery to $925M+ in FY2026 as synergies materialize. The acquisition added ~$1.9B to total assets and is expected to be earnings-accretive starting FY2026 (EPS +28% consensus). |
| WACC | Beta 0.92 (Finnhub). Rf=4.25%, ERP=5.5%. Ke=9.31%. Kd=3.56% (4.5% pre-tax × 0.79). We=81.2%, Wd=18.8%. WACC=8.23%. Leverage is elevated from acquisition but management has guided debt reduction — as leverage normalizes, WACC should tick down modestly. |
| Net Debt Elevated — Acquisition Funded | Net debt of $3.76B (2.1x EBITDA) is nearly double FY2024 levels ($1.99B, 1.2x). This is the primary driver of valuation haircut vs. pre-acquisition. As FCF improves and debt is repaid, the equity per-share value will increase materially. A $1B net debt reduction over 3 years adds ~$11/share to equity value. |
| Cyclicality Note | PKG operates in a cyclical industry tied to containerboard pricing, which follows GDP and e-commerce demand. FY2022 was a peak year (EPS $11.03) followed by a trough in FY2023 ($8.48). The current cycle appears to be recovering, with the acquisition adding structural growth. Bear case assumes a downturn during integration — worst-case scenario for timing. |
| Sanity Check | Base IV target of ~$230-240 aligns closely with analyst consensus PT of $238. Cross-check: forward P/E of 19.4x on $10.95 FY2026E = $212 (current price); at 22x (justified by growth ramp) = $241. EV/EBITDA of 12.7x is reasonable for a packaging leader in growth mode. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.