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About WestRock

Ever wonder what George Soros is up to nowadays?

Yeah, me neither.

But if one was, some basic assumptions could be made.

Perhaps Mr. Soros is spending the latter years of his life traveling the world and/or donating troves of his net worth to social causes and politicians around the globe (I’m not just guessing, he has a well defined track record of engaging in these activities) or he is just straight up chillin’ out in or near where his primary residence and hedge fund is located, in where else but New York, New York.

While none of these are dangerous assumptions, what I can tell you is that in recent history Soros has been up to establishing a brand new position through his fund, Soros Fund Management (SFM) as of the last fiscal quarter, dedicating a little more than 1% of the entire portfolio to a global packaging conglomerate that makes boxes, cups and basically anything that is used in an on-the-go setting to adequately contain food, drink and other contents by the name of WestRock, being a supplier for small business establishments within the broader overall dining sector as well as some of the largest restaurant operators on the face of the earth, including Domino’s Pizza, Pizza Hut, Panda Express and Swiss Chalet, also serving other operators within the beverage, healthcare, foodservice, fresh food, retail and beauty categories.

WestRock is practically involved with anything relating to manufacturing and selling some form of cardboard packaging, bottling or other similar containers, and I can respect the fact that this Sandy Springs, Georgia-headquartered company is apparently focused on putting all of these products together in a sustainable fashion, and while I am not going to express my personal views regarding the environment nor other climate-related matters, I have no qualms in admitting that I can respect a company that naturally deals with a lot of paper and plastic products and is simultaneously working on ways in which it can lessen its impact, as many of its products are surely going to end up being tossed into landfills or littered on the streets.

At any rate, while some might be quick to assume that a business such as this one is completely recession proof, as no matter the general state of economic affairs consumers in the developed world will be using, in some way or another, WestRock’s products, just being a company that provides essential everyday products does not guarantee itself to be a recession proof company, and this is especially the case with WestRock. A prime example of this being the fact that as the economy continues contracting and consumer’s continue tightening up their budgets, they might not be able to splurge on their usual after work chinese food delight, which means less demand for the food itself, which means less demand from the restaurant for its packaging, directly impacting WestRock’s sales.

Now, I will admit, this company’s client base is very diverse and WestRock has evidently been quite strategic about the industries it provides containers and other packaging solutions for, which will undeniably help them during times of economic downturn, however, just wanted to put it in your ear that there’s still some element(s) of cyclicality in this business, especially when also considering that commodity costs are a major factor for a company such as this one as well, paper being one of their largest and most important to monitor

That’s the initial 411 on WestRock and here is the RestRock.

WestRock’s stock financials

A $13.3 billion enterprise, WestRock has a current stock price of $51.51 along with a price-to-earnings (P/E) ratio of 43.44 and pays out an annually distributed dividend of $1.21 to each of its shareholders, at first indicating that this company’s stock (NYSE: WRK) is expensive relative to its intrinsic, sum-of-the-parts fair value, being that it is most commonly held that a stock with a P/E of 20 implies that a security is trading at fair value and subsequently anything higher indicates that said security is trading at a premium, and boy is WestRock in premium price territory.

One of my initial concerns with this being the case is that I frankly don’t presume this to be a growing company just given how large it is but also how mature its industry is, as one can only grow so quickly (in terms of revenues, mainly) when you’re already enormous and just about as un-nimble as one gets when you reach the top, or near the top, at least.

Of course, there’s a chance that I am way off the mark and WestRock is actually growing its revenues at a considerable rate, and I’d love to be wrong, but I’ll let the numbers speak for themselves in just a moment.

Prior to looking at the company’s income statement, however, I want to peek into WestRock’s balance sheet, and when I do, I find that its management team is responsible for tending to and taking care of approximately $27.4 billion in terms of total assets as well as around $17.3 billion in terms of total liabilities, which is a very solid overall balance sheet breakdown for a company as large and scaled as this one, maintaining somewhere in the neighborhood of 300 factories and related facilities across the world.

Clearly this company has given itself some room to pay down some of its outstanding liabilities, put some more capital behind its dividend in the years and decades to come and/or grow like most other large industry leaders grow and pick up some small, medium and even somewhat large competitors in order to boost revenues and not merely maintain but increase its current market share.

Regarding the company’s income statement, WestRock’s annual revenues (as measured since 2019) have been consistent as all get out, slightly growing during the past five years, seeing a relative low of $17.5 billion in 2020 and a relative high of $21.2 billion, as reported and displayed in 2022, but still experiencing fluctuations between this somewhat narrow and unassuming, un-growth oriented range, which is just the very nature of the costs and associated commodities it dealt with and still deals with today. On the more demand side of things, it’s hardly surprising that 2020 wasn’t such a hot year for this company given the state of the world, but I am truly grateful that WestRock’s revenues weren’t hit much harder during this era, confirming to me that this company’s non-restaurant business offerings and solutions are a large slice of the company’s overall business, which would help me sleep a bit better at night if I happened to already be a shareholder.

Onto the state of the cash flow statement, WestRock’s total cash from operations (also measuring during 2019 and leading up to 2023) have been just about as boring and relatively predictable as one might’ve expected, ranging between a little over $1.8 billion (2023) and $2.3 billion, as shown for 2019, which is overall fine by me both in the context of its aforementioned annual revenue figures and how many costs it maintains given how many facilities and operational sites this company runs, but also in the vein of already knowing that this is a somewhat historically steady company and steady revenues tend to translate into steady cash flows, especially with companies as established, seasoned and large as this one.

WestRock’s stock fundamentals

While we are still talking costs, that lends itself to me briefly highlighting this company’s margins, which, as we can already generally see, aren’t going to be that high being that WestRock’s cash flows, while positive and consistent, are still comparably low to its revenues, but again, with all of the costs, both from an operational and commodity price fluctuation perspective, is not shocking in the least.

With that, Charles Schwab’s platform has WestRock’s net profit margin listed as an objectively (but expectedly) low 1.58%, however, some comfort is to be gathered at this juncture when it is also found on the brokerage platform that one of WestRock’s largest competitors, one of the world’s largest paper products companies in the world, International Paper, maintains an associated net profit margin of 1.12%.

This just appears to be the industry norm, however, I still would like to see a company with the apparent pricing power and market share such as WestRock inch up its net profit margin in the years to come, but as of right now, I am feeling incredibly neutral in relation to its net profit margin, all things considered.

Should you buy WestRock stock?

Now, really all things considered, I can understand why Soros and his hedge fund built in a new position in this company, as it is a fairly stable one and with consumers consuming more than seemingly ever before, especially in metropolitan regions of the United States alone (I’m in Austin guys, I know what I’m talking about), whether it is a neighborhood food truck or a chain restaurant establishment or the medicine you’re picking up at your local CVS or the receiving of some other form of healthcare treatment (which are generally on the rise, by the way), WestRock is a ubiquitous company with a long list of products in specific categories and it is a leader for a reason.

With that being said, this company’s current valuation is a little too rich for my blood given its (lack of) growth in terms of revenues and cash flows, and I think this company is just operating off of too wide and large of a base for it to reasonably have a shot of growing into this sort of lofty valuation anytime soon.

When putting all of the other positive and not-so-positive pieces of the puzzle together, it makes the most sense to me to give this company’s stock a “hold” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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