Winpak (TSX:WPK) Acquires Packaging Solution Company Control Group

ByDan Kent Published On:

Winpak (TSX:WPK) saw an increase of nearly 8.5% in its stock price today after the company acquired the American packaging company Control Group out of Norwood, New Jersey for a total of $42.2 million.

Winpak itself manufactures and distributes packaging materials and products, typically used for health care and perishable food applications. The company operates throughout North America with plants in Canada, Mexico and the United States.

The acquisition was made to diversify the company’s product base, and Control Group provides the large majority of its products in the pharmaceutical and medical markets. Control group is expected to post revenue of nearly $25 million this year, so the price paid was considered relatively cheap.

How will this help Winpak moving forward?

Expanding into new markets is always a challenging endeavor for a company. Winpak skipped the initial step of new product development and marketing and simply purchased a company that already has a strong presence. Although Winpak currently develops packaging for the health care industry, Control Group specializes in it. This expanded footprint should have a positive effect on both the company’s top and bottom lines.

It will be interesting to see how the major manufacturer, with a market cap of over $3 billion, can synergize the medical based Control Group into its operations. The company has had somewhat stagnant revenue, seeing an increase of only $300 000 on revenues of $224 million thus far in 2019.

Quarterly revenue growth sits at a loss of -2.50%, while quarterly earnings are growing at a double digit pace. However, the company’s stock price may have a little bit too much growth priced into it, trading at nearly 26 times forward earnings and 3.10 times book value. If you’re new to investing and just learning how to buy stocks, when we say 26 times forward earnings, we mean that the stock price today is trading at 26 times the expected earnings per share of the company next year.

Analysts expect the company to only grow around 1% next year, and have placed a one year target price of $37.69 on the company, which actually indicates nearly 20% downside. The company is expected to file earnings later this month, so it will be a little while before we can see how fruitful this acquisition really will be.