GRAPHIC PACKAGING HOLDING CO (GPK) stock intrinsic value fair value estimate & owner earnings analysis

Graphic Packaging makes the cartons, cups, trays and containers around everyday consumer products (cereal, beverages, frozen food, health and beauty). It owns most of its own paperboard mills, so it is both a paperboard producer and a converter selling to large food, beverage and consumer companies; no customer exceeds 10% of sales. Sales were $8.6 billion in 2025, down from $9.4 billion in 2023 after the 2024 sale of the Augusta bleached-paperboard mill and lower packaging and open-market paperboard prices. How we measure earnings. We start from operating cash flow, take out swings in working capital, and subtract stock compensation and the capital spending needed to stay in business. On that basis owner earnings per share were roughly $1.53 (2018), $1.61 (2019), $0.71 (2020), $0.20 (2021), $2.97 (2022), $1.95 (2023), -$0.51 (2024) and $0.43 (2025). The series is lumpy because the company spends heavily on mills: a Kalamazoo expansion in 2020-21 and, from 2023 to 2025, a new recycled-paperboard mill in Waco, Texas (started up in Q4 2025, replacing closed mills in Middletown, Ohio and East Angus, Quebec). Because revenue was falling, all 2023-25 capital spending is treated as ongoing cost, which is harsh but consistent. In 2017-18 reported operating cash flow was distorted by how customer receivables are sold; stripping working capital out removes that distortion. Large amortization and past write-offs from acquisitions are added back, as they are sunk cost. Starting level. We use the median of 2018-2025, the years since the 2018 combination with International Paper’s consumer packaging business, which is about $1.12 per share (roughly $335 million a year). Owner earnings in 2025 rose in dollars from a loss in 2024 but the growth rate is not meaningful from a negative base; we assume zero growth in year one, so no acceleration is assumed. Half-year 2026 results point the same way: operating cash flow was $45 million versus $93 million a year earlier and the company reported a small net loss, so we do not lift the level. (Second-quarter 2026 figures come from the company's structured filing data; the full quarterly report text was not available to us.) Base case: about $15 per share. Owner earnings stay flat at about $1.12 per share for roughly 30 years. We credit no growth. Evidence for persistence: a packaging franchise with decades-long customer relationships, an integrated mill network, and positive owner earnings in nine of ten years. What we leave out: savings from the Waco start-up and mill closures (no quantified figure in the filings), the $213 million of 2025 sales from converting customers to sustainable packaging (new-product growth), and any price recovery. Bear case: about $5 per share. Named pressures: (1) paperboard and packaging pricing fell $103 million in 2025 and volumes were flat to down; (2) $5.4 billion of debt, of which 28% floats; in February 2026 lenders agreed to raise the maximum leverage ratio from 4.25x to 5.0x through 2026, which signals limited headroom, and limits buybacks to $65 million a year; (3) low-cost debt maturing ($502 million at 2.0% in 2026, $300 million at 4.75% in 2027) will refinance at higher rates, and about $52 million of interest that was capitalized during construction now hits earnings. Together these cut owner earnings to about $0.60 per share, held for 15 years and then faded to zero. Bull case: about $23 per share. Waco is complete, so capital spending can return to the 5-6% of sales it ran at in 2019 and 2022, without new growth spending. Combined with 2025 operating cash flow (before working capital) of about $1.05 billion, and after higher interest, owner earnings are about $1.70 per share, sustained for 30 years. This uses only results already achieved, not price recovery. What the shares appear to be worth: about $5 to $23, with a central estimate near $15. The margin-of-safety price is set with a wide margin because the business is capital hungry, leveraged, and its 2026 earnings are weak, so the margin-of-safety price is $7. That would be wrong on the upside if Waco savings and capital-spending normalization arrive faster than we assume, and on the downside if leverage covenants tighten again or pricing keeps falling. We could not establish why 2025 stock compensation was only $2 million versus $62 million in 2024; using a normal level would lower 2025 owner earnings modestly.