Packaging stocks got a mixed review from Bank of America Securities on Tuesday, as the bank's analysts said overall demand remains weak but some segments—particularly beverage cans—are holding up better than others. The research arm upgraded AptarGroup, a maker of packaging components, while cutting ratings on O-I Glass, Greif, International Paper, and Sylvamo.
The moves reflect a broader view that the packaging industry is still struggling with soft volumes, which are squeezing profits across many companies. But the bank sees a clear divide: aluminum cans are faring relatively well, while glass and paper are more vulnerable to the downturn.
What's Driving the Split
At the heart of the analysis is a concept called operating rates—how fully a company's mills, furnaces, or production lines are running. In packaging, fixed costs like equipment and energy are high, so when demand drops and plants run below capacity, those costs get spread over fewer units. That can quickly eat into profit margins.
BofA Securities said that glass and paper companies are especially exposed to this pressure. For example, O-I Glass, which makes glass containers, and International Paper and Sylvamo, which focus on paper and packaging, face higher costs when their furnaces and mills aren't running at full tilt. The bank downgraded all three, and cut its price target on O-I Glass to $11 from $13.
In contrast, beverage can producers like Crown Holdings and Ball Corporation appear more resilient. The bank raised its price objective on Crown to $145 from $129 and on Ball to $73 from $70. The reasoning: demand for cans is more stable, and aluminum input costs are falling, which helps protect margins even when overall volumes are soft.
AptarGroup, which makes dispensing systems and closures for packaging, was upgraded to buy from neutral, with a new price target of $173, up from $148. The bank sees the company as a niche player with steadier demand and better cost dynamics.
Why It Matters for Investors
Packaging is a volume-driven business, meaning small changes in demand can have outsized effects on earnings. When the economy slows, companies that rely on high operating rates to stay profitable can see their margins shrink fast. That's why the divergence between cans and glass or paper is important: it signals which companies might weather a sluggish environment better than others.
For everyday investors, this split means that not all packaging stocks are created equal. Even within the same industry, some companies have more resilient business models. Beverage can producers benefit from steady consumer demand for drinks and cheaper raw materials, while glass and paper makers are more tied to industrial and commercial activity, which has been weaker.
The broader context is that packaging volumes have been soft for several quarters, as inflation and higher interest rates have weighed on consumer spending and business investment. While there are signs that inflation is cooling, the recovery in packaging demand has been uneven. Investors will be watching for any pickup in orders or improvement in operating rates as a sign that the worst may be over.
In related news, UBS recently maintained a sell rating on National Beverage, citing margin pressure from both input costs and competition. That underscores the challenges even in the beverage space, though cans appear to be a relative bright spot.
Meanwhile, Splash Beverage's pivot to pharmaceuticals highlights how some beverage companies are diversifying away from traditional markets. But for the packaging firms BofA covered, the near-term focus remains on demand and cost trends.
What to Watch Next
Investors should keep an eye on quarterly earnings reports from these companies for updates on operating rates and volume trends. Any sign of a rebound in industrial production or consumer spending could lift the entire sector, but for now, the bank's message is clear: beverage cans are the safer bet in a soft market.
The downgrades on O-I Glass, Greif, International Paper, and Sylvamo suggest that these stocks may face more headwinds until demand picks up. Conversely, the upgrades on AptarGroup and the raised targets on Crown and Ball indicate that some packaging companies can still deliver value even in a sluggish environment.
As always, investors should consider their own risk tolerance and portfolio diversification rather than following any single analyst's call. But the BofA note provides a useful framework for understanding which parts of the packaging industry are most sensitive to the economic cycle.
