Smurfit Westrock Named Top Packaging Pick by Morgan Stanley on Pricing Power

Morgan Stanley has identified Smurfit Westrock as its top pick in the paper and packaging industry, according to a note from analyst Ioannis Masvoulas. The firm's positive outlook follows the packaging giant's second-quarter results and a recent announcement of price hikes for key products in North America.

Second-Quarter Performance

Smurfit Westrock's second-quarter EBITDA met both consensus and Morgan Stanley's expectations, with net debt of $13.5 billion also aligning with market forecasts. The company narrowed its full-year 2026 EBITDA guidance to a range of $4.9 billion to $5.1 billion, with the midpoint remaining close to prior expectations.

The results revealed a divergence in regional performance. North American volumes declined by 4.8% year-over-year, a weaker result than anticipated. However, this was offset by stronger-than-expected performance in Europe, where volumes grew by 1.5%, surpassing analyst estimates.

Pricing and Cost Pressures

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Despite the solid quarter, Smurfit Westrock guided for third-quarter EBITDA of $1.3 billion, which is 7% below consensus estimates. The company attributed the softer near-term outlook to significant cost pressures, including a $150 million year-over-year increase in freight and energy costs for the third quarter.

In response to tight supply conditions and rising costs, the company announced price increases for its North American containerboard and kraft paper, set to take effect on September 1. According to Fastmarkets, the hike will be $100 per short ton, a move that follows similar price increases from competitors Packaging Corp. and International Paper.

Analyst Outlook

Morgan Stanley noted that the implementation of these price increases implies a fourth-quarter EBITDA run-rate of more than $5.9 billion. This projection suggests potential upside for the company's 2027 performance compared to the current consensus estimate of $5.8 billion, underpinning the firm's decision to name Smurfit Westrock its leading sector pick.