Credit Suisse bumped up its target price for shares of DS Smith from 470.0p to 500.0p, as demand continued to surprise to the upside.
However, they kept their recommendation unchanged at ‘neutral’, arguing that the stock was changing hands at an undeserved premium.
On average, the Swiss broker revised its 2022-24 earnings per share estimates for the packaging specialist by 4%.
“We maintain our view that the market underestimates demand and, thus, the longevity of a positive pricing cycle,” it said.
They also noted the “incremental growth opportunities”, – beyond the near-term demand strength – from sustainable packaging as corporates review their strategies.
Credit Suisse also highlighted how strength in containerboard pricing was more than offsetting “soaring” old corrugated container prices, energy and transportation costs.
On the flip-side, at 8.9 times’ the broker’s estimated EV/EBITDA multiple for the firm in fiscal 2022, Credit Suisse said the shares were trading at a 9% calendar adjusted equity premium to better-performing peers.
“We do not view this premium as warranted considering weaker return profile and increased earnings volatility caused by recent, in our view, expensive acquisitions.”
