Shares of Packaging Corp. of America jumped Tuesday as Credit Suisse said profit will likely rise next year at the cardboard box material maker.
Credit Suisse added the Lake Forest, Ill., company to its U.S. Focus List, a group of recommended stocks.
Packaging Corp. offers investors an "underappreciated pricing power and margin expansion story in 2010 which should lead to material increases" in consensus earnings estimates, analyst Chip Dillon said in a client note.
He rates its shares "Outperform" and set a 12-month target of $29, implying he expects shares to rise 46 percent from Monday's closing price.
"We consider it one of the best managed companies in the entire sector with the company maintaining a very strong balance sheet and remaining profitable throughout the cycle," Dillon said.
Several containerboard price increases have been announced in the U.S. and Europe, and Dillon said he expects an increase of at least $50 a ton in the first quarter, with one or more increases possible later in 2010.
Annual earnings will rise by $1.40 per share for each $100 per ton price increase, Dillon said.
In addition, the company benefits from low raw material costs, using lower-priced softwood trees instead of purchased recycled boxes, he said.
Packaging Corp. also is investing in two major energy projects that will reduce power purchases, adding between 55 cents per share and 70 cents per share, Dillon estimated.
Shares of Packaging Corp. rose $1.08, or 5 percent, to $21 in morning trading.