Tariff Hikes Will Hinder Packaging Operations But Automation Will Emerge

Key Takeaways

• Demand for recyclable packaging is rising, but advanced sustainable alternatives and large buyers threaten Ranpak's growth and pricing power.
  
• Automation and innovation investments may drive diversification, yet reliance on major customers and fixed costs create revenue and earnings volatility risks.
  
• Revenue and earnings are at risk due to customer concentration, regional sales uncertainty, trade pressures, automation setbacks, and persistent challenges to margin growth.

Catalysts

Provides product protection solutions and end-of-line automation solutions for e-commerce and industrial supply chains in North America, Europe, and Asia.

• While the ongoing global shift toward sustainability and stricter regulation of single-use plastics should create a favorable, expanding market for Ranpak's recyclable packaging solutions and underpin long-term revenue growth, the company still confronts the risk that large customers may accelerate adoption of more advanced, reusable or zero-waste systems, which could cap Ranpak's volume growth in core paper-based products and apply downward pressure on both revenue and margins over time.
  
• Although Ranpak is capturing tailwinds from e-commerce growth and increased automation demand, especially with a robust automation backlog and enterprise contract wins expected to drive future sales, the consolidation trend among packaging buyers and logistics providers could erode Ranpak's pricing power, limit contractual flexibility, and compress net margins, as larger customers gain greater leverage in negotiations.
  
• Even as Ranpak's increased investment in product innovation and automation may yield higher-margin growth opportunities and diversify revenue streams, there is a risk that emerging alternative sustainable packaging materials, such as bioplastics or compostables, gain traction faster than expected, thereby eroding Ranpak's competitiveness and share, particularly as secular trends focus on reducing overall paper consumption.
  
• While the company's global integration and operational realignment are likely to deliver cost savings and efficiency improvements-potentially stabilizing earnings and supporting better operating leverage-a high fixed-cost structure and exposure to regional trade disruptions and tariffs could still make earnings highly volatile during downturns or sluggish European growth, constraining improvement in net margins.
  
• Although Ranpak's investments in automation and strategic partnerships may, over the long term, enable step-change growth in high-value segments and recurring revenue, its dependency on a concentrated group of large enterprise customers increases the risk that contract renegotiations or unexpected customer losses could cause abrupt revenue declines and limit the ability to sustainably expand operating margins.

Ranpak Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ranpak Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ranpak Holdings's revenue will grow by 9.0% annually over the next 3 years.
• The bearish analysts are not forecasting that Ranpak Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ranpak Holdings's profit margin will increase from -9.8% to the average US Packaging industry of 6.9% in 3 years.
• If Ranpak Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $33.8 million (and earnings per share of $0.39) by about August 2028, up from $-37.3 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 16.4x on those 2028 earnings, up from -9.6x today. This future PE is lower than the current PE for the US Packaging industry at 22.1x.
• Analysts expect the number of shares outstanding to grow by 1.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.35%, as per the Simply Wall St company report.

Ranpak Holdings Future Earnings Per Share Growth

Risks

• Ranpak's dependence on large enterprise and e-commerce customers, as highlighted by the anticipated multiyear North American contract, increases risk to revenue and earnings if any contract is lost, delayed, or renegotiated unfavorably, since the loss of a few key accounts or volatility in their purchasing patterns could quickly erode financial performance.
  
• The company's flat to declining sales volumes in Europe and Asia Pacific and management's uncertainty about whether recent volume upticks will be sustainable suggest that revenue from these regions, which are highly profitable and represent more than half of adjusted EBITDA, may remain challenged or even contract further, undermining overall growth and margin expansion.
  
• Ongoing exposure to evolving tariff and trade environments, especially the need to source converter units from China for the U.S. market and regional trade unpredictability in Europe, may disrupt supply chains or increase input costs, putting continued pressure on operating margins and capital expenditures across multiple years.
  
• Ranpak's automation business, while positioned as a future growth engine, has been a consistent drag on EBITDA and only expected to reach operational breakeven near year-end, meaning any delay in automation market adoption or inability to reach profitability targets could weigh on consolidated earnings and enterprise value for longer than anticipated.
  
• Adjusted EBITDA guidance for 2025 is already coming in slightly below original expectations due to one-off charges, negative mix, and temporary inefficiencies, casting doubt on Ranpak's operational agility and raising the risk that any future operational or market volatility could lead to sustained margin compression and lower net income.

Valuation

• The assumed bearish price target for Ranpak Holdings is $5.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ranpak Holdings'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 $8.0, and the most bearish reporting a price target of just $5.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $492.5 million, earnings will come to $33.8 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 8.4%.
• Given the current share price of $4.24, the bearish analyst price target of $5.0 is 15.2% higher.
• 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.