We thought we were the only ones that got excited about cardboard boxes. But no, it seems like the fever for this boring business is building this morning after Rock-Tenn Co., maker of packaging for food and consumer products, said Sunday it agreed to purchase Smurfit-Stone Container Corp. for $3.5 billion in cash and stock.
The excitement seems to be extending to others in the box business. Packaging Corp. of America is up 2.5%. International Paper is up 3.7%. MeadWestvaco Corp., which makes packaging and specialty paper is up 4%.
We view this consolidation as positive for the North American containerboard industry, especially considering Smurfit-Stone’s penchant for discounting. We expect a North American price increase in containerboard in Q2/11. Our top picks are International Paper (IP-NYSE, Outperform) and Packaging Corp. (PKG-NYSE, Outperform). We also recommend Cascades (CASTSX, Outperform).