Clearwater Paper Corporation (NYSE: CLW) is a prominent manufacturer in the paper and packaging industry, specializing in bleached paperboard and at-home tissue products. Despite volatile revenue growth, CLW has managed to consistently improve its profitability margins.
The company’s positioning for long-term growth is bolstered by the increasing preference for recycled-based packaging. The recent acquisition of the Augusta facility is anticipated to significantly enhance CLW’s scale and growth capacity, making it a strong investment candidate.
Historical Financial Analysis
Clearwater Paper has shown fluctuating revenue growth, with FY23 experiencing stagnant year-over-year growth due to weaker demand for paperboard as clients adjusted inventory levels.
However, demand for private-label consumer products has remained strong. In FY22, CLW saw a 17.35% revenue growth driven by increased prices in response to inflation.
Profit margins have improved across the board, with FY23 showing the most significant gains. Adjusted EBITDA grew to $281 million, with margins expanding from 11% to 13% compared to the previous year.
This improvement was primarily due to the tissue segment, which doubled its adjusted EBITDA from $74.2 million to $150.05 million. However, the pulp and paperboard segment saw a slight decline from $220.4 million to $206.4 million.
The company anticipates that major maintenance at its Lewiston facility will impact adjusted EBITDA by $30-$35 million in FY24.
First Quarter 2024 Analysis
In Q1 2024, Clearwater Paper’s net sales fell by 6% year-over-year. The Pulp & Paperboard segment experienced a 12% decline due to lower volumes and average net selling prices, while the Consumer Products segment saw a 2% increase, driven by strong retail tissue volume despite slight weaknesses in average pricing.
Adjusted EBITDA for the Pulp & Paperboard segment fell from $66 million to $34 million due to lower sales prices and operational suspensions at Lewiston caused by severe weather. Conversely, the Consumer Products segment’s adjusted EBITDA margin increased from $19 million to $46 million, thanks to higher volume, lower input costs, and operational efficiencies.
Segment Revenue
Clearwater Paper’s revenue is roughly evenly split between its Pulp & Paperboard and Consumer Products segments. The company is a leading manufacturer of Solid Bleached Sulfate (SBS) paperboard, which is increasingly preferred for its environmentally friendly properties.
Additionally, CLW produces a complete line of private-branded tissue products, catering to major U.S. retail channels.
Growing Demand for Recycled-Based Packaging
There is strong demand for packaging in North America, particularly for SBS paperboard as an alternative to plastic. Environmental regulations and consumer preferences are driving this trend, with states banning plastic and cities successfully reducing plastic bag usage.
SBS is recyclable, biodegradable, and has a historical annual growth of 1-2%, which may increase further due to sustainability trends.
Potential Displacement of SBS by FBB
CLW may face competition from Folding Box Board (FBB) producers like Billerud AB, which is investing in FBB capacity in North America. This new competition could challenge SBS’s market share if FBB producers can offer competitive pricing.
Augusta Acquisition
The acquisition of Augusta, a paperboard manufacturing facility, adds approximately 600,000 tonnes of paperboard capacity to Clearwater Paper. This acquisition is expected to significantly enhance CLW’s scale and growth potential, projecting an additional $140-$150 million in EBITDA by 2026 and increasing CLW’s paperboard capacity by 70%.
Relative Valuation Model
Compared to its peers, CLW shows a strong growth outlook but slightly underperforms in profitability margins. The company’s P/E ratio is 14.42x, higher than the peers’ median of 11.99x, though lower than its five-year average.
Given its growth potential and competitive positioning, a target P/E applied to its 2025 EPS of $4.87 results in a target price of $58.39, reflecting a 12% upside potential.
Risks to Consider
The introduction of FBB into North America could threaten CLW’s market share if FBB can offer lower costs. Billerud AB’s planned FBB production facilities may increase competition by 2030. However, this threat is not immediate. CLW should focus on strategic initiatives to counter this potential disruption.
Given its growth catalysts and 12% upside potential, CLW is a compelling investment opportunity.
DISCLAIMER
You should read and understand this disclaimer in its entirety before joining or viewing the website or email/blog list of SmallCapStocks.com (the “Publisher”). The information (collectively the “Advertisement”) disseminated by email, text or other method by the Publisher including this publication is a paid commercial advertisement and should not be relied upon for making an investment decision or any other purpose. The Publisher is engaged in the business of marketing and advertising the securities of publicly traded companies in exchange for compensation. The track record, gains, upside, and/or losses mentioned in the Advertisement, if any, should not be considered as true or accurate or be the basis for an investment. The Publisher does not verify the accuracy or completeness of any information included in the Advertisement. While the Publisher does not charge for the SMS service, standard carrier message and data rates may apply. To unsubscribe from receiving promotional text messages to your phone sent via an autodialer, using your phone reply to the sender’s phone number with the word STOP or HELP for help.
The Advertisement is not a solicitation or recommendation to buy securities of the advertised company. An offer to buy or sell securities can be made only by a disclosure document that complies with applicable securities laws and only in the states or other jurisdictions in which the security is eligible for sale. The Advertisement is not a disclosure document. The Advertisement is only a favorable snapshot of unverified information about the advertised company. An investor considering purchasing the securities, should always do so only with the assistance of his legal, tax and investment advisors. Investors should review with his or her investment advisor, tax advisor or attorney, if and to the extent available, any information concerning a potential investment at the web sites of the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov; the Financial Industry Regulatory Authority (the "FINRA") at www.FINRA.org, and relevant State Securities Administrator website and the OTC Markets website at www.otcmarkets.com. The Publisher cautions investors to read the SEC advisory to investors concerning Internet Stock Fraud at www.sec.gov/consumer/cyberfr.htm, as well as related information published by the FINRA on how to invest carefully. Investors are responsible for verifying all information in the Advertisement. As an advertiser, we do not verify any information we publish. The Advertisement should not be considered true or complete.
The Publisher does not offer investment advice or analysis, and the Publisher further urges you to consult your own independent tax, business, financial and investment advisors concerning any investment you make in securities particularly those quoted on the OTC Markets. Investing in securities is highly speculative and carries an extremely high degree of risk. You could lose your entire investment if you invest in any company mentioned in the Advertisement. You acknowledge that we are not an investment advisory service, a broker-dealer or an investment adviser and we are not qualified to act as such. You acknowledge that you will consult with your own independent, tax, financial and/or legal advisers regarding any decisions as to any company mentioned here. We have not determined if the Advertisement is accurate, correct or truthful. The Advertisement is compiled from publicly available information, which include, but are not limited to, no cost online research, magazines, newspapers, reports filed with the SEC or information furnished by way of press releases. Because all information relied upon by us in preparing an advertisement about an issuer comes from a public source, it is not reliable, and you should not assume it is accurate or complete.
By your subscription to our profiles, the viewing of this profile and/or use of our website, you have agreed and acknowledged the terms of our full disclaimer and privacy policy which can be viewed at the following link: www.SmallCapStocks.com/Disclaimer and www.SmallCapStocks.com/Privacy-Policy
By accepting the Advertisement, you agree and acknowledge that any hyperlinks to the website of (1) a client company, (2) the party issuing or preparing the information for the company, or (3) other information contained in the Advertisement is provided only for your reference and convenience. The advertiser is not responsible for the accuracy or reliability of these external sites, nor is it responsible for the content, opinions, products or other materials on external sites or information sources. If you use, act upon or make decisions in reliance on information contained in any disseminated report/release or any hyperlink, you do so at your own risk and agree to hold us, our officers, directors, shareholders, affiliates and agents harmless. You acknowledge that you are not relying on the Publisher, and we are not liable for, any actions taken by you based on any information contained in any disseminated email or hyperlink.
Dean is a freelance content writer who contributes to various Digital Media Companies and independent websites all over the world. He has over 20 years of financial industry experience, so it’s safe to say he’s well informed.
