Based in Atlanta, Georgia, WestRock Company (WRK) is engaged in manufacturing and selling paper and packaging solutions in the United States, Europe, Asia, and Australia. After it recently disclosed details of a ransomware incident, which impacted some of its operational and information technology systems, the stock witnessed a decline. Over the past month, the stock has declined 5.6%.
Although WRK has gained 9.5% over the past three-months, due primarily to record box shipments and growth in key end markets, the company continues to see slower consumer demand and a decrease in segment net sales due to unfavorable foreign currency impacts due to the pandemic.
Here is what we think could affect the performance of the stock in the coming months:
Ransomware Attack Delays Business
On January 25, WRK announced that it detected a ransomware attack that affected some of its operational and information technology systems. Although its security teams are making extensive efforts to remediate the situation , the attack could continue to cause delays in parts of WRK’s business and may result in a loss of revenue and incremental costs that may adversely impact the company’s financial results. Lagging production levels and slower shipments from the company’s mills could result in a decline in stock price in the coming months.
Mixed Demand Outlook
In the wake of the COVID-19 pandemic, certain types of packaging have witnessed the sharpest declines in demand while others have seen accelerating growth — such as packaging for e-commerce shipments, which is consistent with a boom in e-commerce activity worldwide. Such changes have presented many packaging companies with a new set of challenges.
While significant demand in food service and beverage packaging categories is driving the demand for WRK’s consumer packaging segment, the company is still witnessing slower-than-anticipated demand from industrial and agricultural customers. In its last reported quarter, net sales by WRK’s corrugated packaging segment declined 1.5% year-over-year to $2.86 billion, while its consumer packaging segment’s net sales increased 3.6% compared to the prior-year quarter.
WRK’s revenues declined slightly year-over-year to $4.4 billion for the fiscal first quarter ended December 31, 2020. The company’s segment income declined 7.1% versus its year-ago value to $307.5 million, while its adjusted segment EBITDA declined 9.8% year-over-year to $457.9 million over this period. This suggests that the company is far from resuming a pre-pandemic growth trajectory.
POWR Ratings Indicate Uncertain Prospects
WRK has an overall rating of C, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, WRK has a Growth Grade of C. This is consistent with its weak revenue and earnings growth potential.
In addition, WRK has a grade of C for Momentum, reflecting the stock’s weak price performance.
WRK is currently ranked #9 of 23 stocks in the B-rated Industrial – Packaging industry.
To see additional POWR Ratings for Quality, Stability, Sentiment, and Value for WRK, Click here.
If you are looking for better stocks in the Industrial – Packaging industry with an Overall POWR Rating of Buy, you can access them here.
Despite witnessing stronger sales in a few of its segments in the last reported quarter, recent events could significantly impact its growth prospects in the near term. Moreover, the company’s almost flat revenues as compared to the year-ago period, and weaker fundamentals, we think could stop the stock from moving higher in the near term.
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WRK shares were trading at $43.68 per share on Tuesday afternoon, up $0.96 (+2.25%). Year-to-date, WRK has gained 0.34%, versus a 4.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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