Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Do Hedge Funds Like Graphic Packaging Holding Company (GPK)?

Graphic Packaging Holding Company (NYSE:GPK) is a leading global paperboard packaging company. In this article, we’ll take a closer look at the company’s fundamentals and analyze hedge fund activity around the stock in the second quarter.

While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).

Graphic Packaging Holding Company (NYSE:GPK)

Graphic Packaging Holding Company (NYSE:GPK) was originally focused on the U.S. food and beverage categories but it has since evolved into a global operator with a diversified portfolio through acquisitions. Hedge funds like Graphic Packaging because the company accretively acquires/integrates other companies, consistently buys back its stock, has a conservatively leveraged balance sheet, and trades for a reasonable forward P/E of 16.2.

Follow Graphic Packaging Holding Co (NYSE:GPK)
Trade (NYSE:GPK) Now!

Graphic Packaging’s stock rallied from below $2 in 2009 to a high of $16 in early 2015 due to its accretive acquisition strategy. Its shares have pulled back since then due to a contraction in the company’s earnings multiple. Although its stock has retraced, Graphic Packaging’s management has continued its M&A strategy. Since early 2015, Graphic Packaging has completed multiple acquisitions in North America, including purchasing 11 converting facilities and a CRB mill. The deals have added around $450 million to its revenue and $54 million in EBITDA, the latter of which Graphic Packaging expects to ultimately grow to $70 million to $80 million annually within 12-to-24 months. In the second quarter, Graphic Packaging also completed the acquisition of Australian-based Colorpak, in a transaction that should contribute another $11 million-to-$13 million annually within two years.

Graphic Packaging reported solid second quarter earnings. Adjusted earnings for the period were $0.19 per share, unchanged from the same quarter of the prior year and in-line with estimates. Revenue came in at $1.1 billion, up by 3.8% year-over-year, and also in-line with the consensus. Due to $21.0 million in performance improvements in the quarter, adjusted EBITDA was $195.2 million, slightly higher than the year-ago period’s $192.1 million. Graphic Packaging’s management maintained their full-year outlook of an EBITDA increase of 4%-to-7% year-over-year and cash flow of $360-to-$380 million. In addition, Graphic Packaging bought back $37 million in shares, reducing its float by 0.84%.

As Graphic Packaging continues to make more tuck-in acquisitions, buys back stock, and unlocks synergy from its previous deals, hedge funds believe that the market will give Graphic Packaging more credit for its FCF (Graphic Packaging currently has a cash flow yield of 8.1%-to-8.6%) and send the stock up higher. Analysts meanwhile, have a price target of $15.44 per share on the stock, $1.03 above its current price.

We’ll analyze how the smart money traded Graphic Packaging in the second quarter on the next page.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.