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WestRock: A 5% Dividend Yield With A Reasonable Margin Of Safety

Published Wed, 11 Sep 2019 12:49:46 -0400 on Seeking Alpha

WestRock Company (WRK) is now trading at a significantly lower valuation than a year ago, despite showing strong revenue numbers across the board this past quarter and sporting a strong balance sheet. The KapStone (KS) acquisition last year was a good move to expand its physical presence as well as product offerings, but none of that seems to have convinced the market. The stock is now trading at about $35, or nearly 40% lower than its historical one-year high of +$56. Dividend yield at the current price stands in excess of 5%, making WRK worthy of consideration as a dividend investment. And, at the current price, there’s a considerable margin of safety as well. Let’s look at some of WRK’s key metrics to validate this thesis.
Why is the Stock Trading at Such Low Valuation Multiples?
From a relative valuation perspective, WestRock is trading at much lower levels than sector peers like Packaging Corporation of America (PKG) and Graphic Packaging Holding Company (GPK), which have respective forward earnings ratios of 12 and 15.3 compared to WRK’s ratio of 8.7. WRK is, however, trading slightly higher than the 7.2 forward earnings ratio of its larger competitor, International Paper Company (IP).

However, relatively weak earnings growth over the past few quarters since the acquisition as well as relatively weak guidance for Q4 2019 adjusted segment EBITDA have pushed forward earnings valuation down by nearly 7% on a YTD basis, while peers have largely gained... Read more