Packaging Corp of America (PKG)

Conclusion

Packaging Corporation of America makes containerboard and uncoated freesheet paper in North America. Its Packaging segment sells corrugated shipping containers and display packaging, and its Paper segment sells commodity, specialty and office papers. At a share price of 254.41 USD on 9 November 2026, the market capitalisation is 22.7 billion USD across 89.1 million shares.

The verdict is fair. The P/E of 31.2 compares with a ten-year median of 16.7, and the P/FCF of 30.5 with a median of 20.6. The discounted cash flow gives 328.08 USD per share at a discount rate of 8.9%, while the fair value from historical multiples is 171.60 USD. The fair value band runs from 199.87 to 299.81 USD with a midpoint of 249.84 USD, a margin of safety of -1.8% at the current price. The reverse DCF implies growth of 11.9% a year. Its comparison values are 5.7% for revenue and 7.3% for free cash flow per share over five years.

What holds the case up is free cash flow conversion of 102.2% over the last twelve months, a share count that fell at a compound 1.0% a year over five years, and interest coverage of 8.6x. The weakest numbers are the three-year EPS compound growth of -8.3%, the net margin of 7.4% against a ten-year median of 9.9%, and the P/E premium of 86.8% over its median.

Financial health

Financial health is grey, because too few balance sheet figures are available to assess it. Interest coverage of 8.6x is the one measure that is assessed as good. The current ratio, quick ratio, net debt to EBITDA and debt to equity are not available, because the company does not report its cash and debt figures in the data used here. The Altman Z-score is not available either, because its inputs are missing. The Altman model was designed for manufacturers, so it only partly fits a paper and packaging producer. For insolvency risk, the Ohlson model estimates a low level, about 0.5% over one to two years, based on figures to 31 December 2025. Unlike the Altman model, the Ohlson model is not built on a manufacturing sector. The company's interest coverage is the only solid evidence of debt service capacity.

Earnings quality

Earnings quality is yellow. Free cash flow conversion is strong: 102.2% over the last twelve months and 77.3% on a five-year average. The accrual ratio is -7.98%, which means cash earnings exceed reported earnings. The Beneish M-score of -2.55 is read as unlikely to signal manipulation. Stock-based compensation is 0.5% of revenue, and free cash flow after it is 693 million USD. The share count fell at a compound 1.0% a year over five years, which reflects buybacks. The Piotroski score is 3 out of 9, which is weak. The company beat estimates in 5 of its last 8 quarters, with an average surprise of 1.8%. Analysts have cut the current-year estimate by 1.2% over 90 days, with two downgrades in the last 30 days. For next year, the estimate rose 12.7% over 90 days, with five upgrades in the last 30 days.

Profitability

Profitability is yellow. The gross margin is 20.5% against a ten-year median of 22.5%. The operating margin is 13.3% against a median of 14.2%, and the net margin is 7.4% against a median of 9.9%. Operating margin stability is 9.1%. The five-year median return on invested capital is 13.3%, against a weighted cost of capital of 8.9%. The current-year ROIC and its gap to the cost of capital are not available in the data. Return on equity is also not available for the latest period. Its last reported DuPont split, for 31 December 2025, shows a net margin of 8.6%, an asset turnover of 0.82 and an equity multiplier of 2.38. Part of the return on equity therefore comes from leverage rather than from margins.

Growth

Growth is green. Revenue grew at a compound 2.0% a year over three years and 6.2% over five years. Earnings per share fell at a compound 8.3% a year over three years but rose 11.9% a year over five years. Free cash flow per share grew 4.0% a year over three years and 4.7% over five. Revenue rose in 6 of the last 10 comparable years. The next-year earnings estimate points to growth of 34.1%, which would be a sharp rebound after the weak three-year record. That estimate supports the green rating only if it is delivered, since the three-year trend is still negative.

Valuation

Valuation is yellow. The P/E of 31.2 is 86.8% above its ten-year median of 16.7. The P/FCF of 30.5 is 48.3% above its median of 20.6, and the P/S of 2.31 is 29.3% above its median of 1.78. The EV/EBITDA and P/B current values are not available. The discounted cash flow gives 328.08 USD per share, using an 8.9% discount rate, 20% growth for the first stage and 2.5% terminal growth. The terminal value makes up 63.2% of that value. The fair value from historical multiples is 171.60 USD. The fair value band is an order-of-magnitude range built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target. The cost of debt of 6.9% is an assumption rather than a reported figure. The dividend yield is 2.0%, the forward yield is 2.3%, and the payout is 60.4% of free cash flow.

Risks

The weakest numbers are the ones that would hurt most if they worsened. A further fall in the net margin from 7.4% would press on the return on invested capital, which the five-year median of 13.3% already sits well above the cost of capital of 8.9% only on average. If the expected rebound in earnings does not come, the 3-year EPS decline of 8.3% would continue, and the P/E of 31.2 would look more expensive. A low Piotroski score of 3 means that most of the quality tests are not passed. Several balance sheet values are not available, including cash, debt, net debt to EBITDA and the Altman Z-score. Interest coverage is the only leverage figure here. The analysis also has no debt maturity schedule and no revenue split by segment, so it cannot show how the Packaging and Paper businesses contribute to growth or margins.