WRK - WestRock: Exceptional Free Cash Flow Off Highly Productive Assets

2024-06-05 11:10:26 ET

Summary

• Companies in the basic material sector have performed well in the first half of 2024, aligning with previous estimates.
• WestRock Company is a standout in the paper and packaging industry, trading at relative premiums to peers.
• WRK demonstrates strong business economics, including high inventory turnover and significant free cash flow, supporting a buy rating.

Investment Summary

Companies in the basic material sector have delivered surprisingly good market returns across the first half of 2024. Given our thesis on the material sector first presented back in Q3 2023, this has been pleasing to see.

I advocated allocating to the materials domain back then, as it looked attractively positioned on the price/value matrix. At the time, the sector held just 2% of the notional value of the market cap-weighted S&P 500 Index and was projected to grow earnings by 10% over the fourth to coming 12 months. This - followed by the utilities sector - presented an attractive composite, as seen in Figure 1....

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