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Two analysts and top management from six sector firms examine the packaging & containers sector in this special 32-page Packaging & Containers issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info532.htm.

TWST: Are there other concerns that investors should take note of when they are looking at the group?

Mr. Tiss: Well, in terms of the risks, the other thing I wanted to mention was the valuation — that, over the last 20 years, the packaging group has traded between 5 times and 10 times forward EBITDA. To me, that’s the best way to measure the valuation. In the last two years, we’ve gone from about 5 times to about 7.8 times forward EBITDA. So, although the group is not overpriced, it’s kind of just gone from the bottom of the range to the middle of the range. It’s hard to see why this group is going to go to the top of the range near term. There is nothing out there that says, “Oh, the growth characteristics of the industry have changed. The balance sheets, margins and returns are so much better.” It’s the same old growth and return characteristics that we’ve had for the last five years. So there’s nothing that I can see that argues why we should go to 10 times right away. I would say that the group has gone from being significantly undervalued to being closer to fair valuation. I put out a note two weeks ago saying that in that environment, I really want to focus down on four names that I think can take us to the next level.

TWST: What would those names be?

Mr. Tiss: In order, those names are Pactiv (NYSE:PTV), Ball (NYSE:BLL), Owens-Illinois (NYSE:OI) and Sealed Air (NYSE:SEE). They’re picks, but all for different reasons.

TWST: Would these be your top picks in the group today?

Mr. Tiss: Yes, and in that order as well. The top one is Pactiv. There are a couple of things appealing about Pactiv. Firstly, it was a spinout of Tenneco over two years ago. I think that as a division of a bigger conglomerate, it probably never got the kind of attention that it should have and thus never achieved the sort of returns and free cash flow generation that it was capable of. In the last two years, debt to total cap has come down from 70% to 38%. Free cash flow has gone from negative 150 million to positive 250 million. Operating margins have gone from about 9% to about 13%. And return on capital has gone from about 3% to about 9%. The returns have gone from lousy to a little above average. In my view, there is a lot more to go on those returns, the profitability and the free cash flow. The underlying attractiveness of Pactiv is that half of the company makes food service containers, which is about a 7% volume-growth business. Another 35% of the company is Hefty, which makes garbage bags, sandwich bags, plates and things like that. The rest of the company is a protective and flexible packaging business that makes everything from hospital curtains, to mattress bags, IV bags and things like that. So they’re really all over the place in that business. Pactiv has about 4% to 6% internal growth potential, and it’s been realizing better than that. It has room to improve margins; it has cleaned up its balance sheet so it can start to make acquisitions. The company has also been very smart and aggressive about paying down debt, buying back shares and really improving shareholder value. That stock has gone from about 6 times forward EBITDA to about 7.4 times, which is still a discount to the rest of the group. I think that over the next three years, Pactiv has a very, very good shot at being the best quality packaging company in the whole group.

This special issue includes:

1) Outlook for Packaging Companies - In an in-depth (2,400 words) Analyst Interview, Scott Davis, Vice President at Morgan Stanley, examines the outlook for the sector including and shares specific stock recommendations.

2) Packaging Stocks - In an in-depth (4,000 words) Analyst Interview, Joel Tiss, Senior Vice President at Lehman Brothers, Inc., examines the outlook for the sector including and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of six sector firms examine the outlook for their firm and the sector.