DCF Studio

    PKG · NYQ · Consumer Cyclical

    Packaging Corporation of America

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 119.07

    Market price

    USD 232.77

    Implied upside

    -48.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 8.2% of revenue against depreciation of 6.4%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 119.07-48.8%
    Exit multiple
    USD 207.43-10.9%
    Market price
    USD 232.77

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m485m969mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 9.2bnUSD 9.3bnUSD 9.5bnUSD 9.7bnUSD 9.9bn+2.0%
    EBITUSD 1.4bnUSD 1.4bnUSD 1.4bnUSD 1.5bnUSD 1.5bn+2.0%
    NOPATUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.2bn+2.0%
    Add depreciation & amortisationUSD 585.6mUSD 597.2mUSD 608.9mUSD 620.9mUSD 633.2m+2.0%
    Less capital expenditureUSD -755.1mUSD -770.0mUSD -785.2mUSD -800.7mUSD -816.4m+2.0%
    Less increase in working capitalUSD -16.0mUSD -16.3mUSD -16.6mUSD -17.0mUSD -17.3m+2.0%
    Free cashflow to firmUSD 896.5mUSD 914.2mUSD 932.2mUSD 950.5mUSD 969.3m+2.0%
    Discount factor0.95900.88190.81100.74580.6858-
    Present valueUSD 859.7mUSD 806.2mUSD 756.0mUSD 708.9mUSD 664.8m-6.2%
    Present Value Of The ForecastUSD 3.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.864Reported 0.797, pulled toward 1.0 (Blume)
    Cost of equity9.75%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 20.7bn82.6% of capital
    Total debtUSD 4.4bn17.4% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.74%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 119.07

    74% of EV

    Forecast FCFF, final year
    USD 969.3m
    Capex at depreciation, working capital in reinvestment
    USD 1.2bn
    Less reinvestment at g/ROIC (19.0% of NOPAT)
    USD -222.2m
    Capitalised
    USD 947.7m
    ROIC (reported)
    13.2%
    Terminal value, undiscounted
    USD 15.6bn
    Terminal value, discounted
    USD 10.7bn
    Enterprise value
    USD 14.5bn
    Less net debt
    USD 3.8bn
    Equity value
    USD 10.7bn

    Exit at 12.8x EBITDA

    Value per shareUSD 207.43

    83% of EV

    Terminal value, undiscounted
    USD 27.1bn
    Terminal value, discounted
    USD 18.6bn
    Enterprise value
    USD 22.4bn
    Less net debt
    USD 3.8bn
    Equity value
    USD 18.6bn

    Spread between methods: 54%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.74%168.73179.27192.20208.49229.69
    7.74%135.34141.45148.67157.33167.95
    8.74%111.18114.86119.08123.96129.72
    9.74%92.9095.1497.65100.48103.70
    10.74%78.5979.9481.4183.0484.84

    Outlined: this model. Green text: above today's price of 232.77. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year2.0%15.4%+13.4pp
    EBIT margin14.9%25.0%+10.0pp
    Discount rate8.7%6.1%-2.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.