On Tuesday, Citi issued a revision on Pactiv Evergreen's (NASDAQ:PTVE) stock, downgrading the rating from Buy to Neutral. This adjustment comes despite an increase in the price target to $18.00, up from the previous $13.00. The change in rating follows Pactiv Evergreen's shares closing at $17.36 on Monday, after a significant 18% rise, which has narrowed the potential for further upside.
The rationale behind the downgrade is linked to the recently announced merger between Pactiv Evergreen and Apollo-owned Novolex, a move that the market has reacted to positively. The analyst from Citi notes that while the industrial logic behind the combination is sound, with both companies serving similar markets in packaging for quick service restaurants, food service, and various consumer end markets, the current share price reflects most of the anticipated benefits.
According to the analyst, the merger will create a company with a robust portfolio, boasting over 250 brands and 39,000 stock-keeping units (SKUs). The combined entity is expected to offer a diverse range of products, including various types of fiber, resin, and recycled packaging options. This extensive product line is poised to solidify the company's position in the packaging industry.
The deal's estimated enterprise value (EV) of $6.7 billion suggests a next twelve months (NTM) EBITDA multiple of 7.8x. This valuation represents a premium compared to Pactiv Evergreen's three-year average trading multiple of 7.2x. The merger is anticipated to bring together highly complementary business operations, enhancing the combined company's market offering.
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