Key Takeaways

Mounting input cost inflation and weakened consumer demand may compress margins, impacting future revenue growth negatively.
Strategic facility closures pose transition risks, potentially harming short-term earnings and operational efficiency.
Strategic investments, pricing actions, innovation in packaging, and sustainable solutions underpin potential growth and shareholder value enhancement for Graphic Packaging.

Catalysts

About Graphic Packaging Holding

Designs, produces, and sells consumer packaging products to brands in food, beverage, foodservice, household, and other consumer products in the Americas, Europe, and the Asia Pacific.What are the underlying business or industry changes driving this perspective?

Graphic Packaging is facing substantial pressure from consumers pulling back as a result of high food prices and declining consumer confidence, leading to weaker volumes and promotional activities by customers not driving meaningful improvements. This is likely to impact future revenue growth negatively.
Significant input cost inflation in energy, chemicals, logistics, and other categories is exerting pressure on operational budgets and causing stress on net margins. Without effective cost management or successful price pass-throughs, this inflation could compress net margins further.
The international market is beginning to show signs of weakening as higher prices and economic uncertainty impact consumer behavior. This potential decline in international volume might lead to lower future revenues than expected.
The closure of Middletown and other facilities, although part of a strategic investment cycle, creates transition risks and potential inefficiencies that might hurt short-term earnings and operational performance as the company shifts production capacity.
Despite planning for substantial cash flow expansion, ongoing consumer retrenchment, promotional ineffectiveness, and regulatory changes like MAHA may not support the expected innovation sales growth, potentially leading to underperformance relative to earnings projections.

Graphic Packaging Holding Earnings and Revenue Growth

Graphic Packaging Holding Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Graphic Packaging Holding compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Graphic Packaging Holding's revenue will decrease by 0.2% annually over the next 3 years.
The bearish analysts assume that profit margins will shrink from 7.2% today to 7.1% in 3 years time.
The bearish analysts expect earnings to reach $621.4 million (and earnings per share of $2.05) by about May 2028, up from $620.0 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.9x on those 2028 earnings, up from 10.6x today. This future PE is lower than the current PE for the US Packaging industry at 20.2x.
Analysts expect the number of shares outstanding to decline by 1.8% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.22%, as per the Simply Wall St company report.

Graphic Packaging Holding Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Graphic Packaging has completed major investments such as the Waco recycled paperboard plant, which is expected to generate substantial cash flow and incremental EBITDA of approximately $80 million in 2026 and 2027, improving cash flows and earnings.
The company has a strong history of offsetting costs through pricing actions and efficiency gains. Recently announced $40 per ton price increases for recycled paperboards are expected to help restore margin levels, positively affecting net margins.
Despite challenging market conditions, international volume growth and innovation in packaging products contributed to $44 million in innovation sales growth in the first quarter, potentially boosting revenue.
Graphic Packaging plans to allocate excess cash towards capital returns, having received board approval for a $1.5 billion share repurchase authorization, which may enhance shareholder value and EPS.
The strategic focus on product innovation and the expansion of sustainable packaging solutions provide a platform for future growth, particularly in international markets, which may stabilize revenues and earnings over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for Graphic Packaging Holding is $21.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Graphic Packaging Holding's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $32.9, and the most bearish reporting a price target of just $21.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $8.7 billion, earnings will come to $621.4 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 7.2%.
Given the current share price of $21.85, the bearish analyst price target of $21.0 is 4.0% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.