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International Paper Hits 52-Week High on Growth Prospects

Zacks

Shares of consumer goods provider, International Paper Company IP hit a new 52-week high of $58.95 on Jul 13, before closing the trading session a tad lower at $58.15, for a healthy year-to-date return of 9.59%.

International Paper’s share price has been on a steady uptrend since May 18. Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock still appears to have enough room for further upside. The stock currently has a long-term earnings growth expectation of 11.3%.

Growth Drivers

The company has outperformed the Zacks categorized Paper and Related Products industry with an average return of 15.2% compared with a 10.6% gain for the latter, over the last 90 days. International Paper is undergoing restructuring initiatives to transform itself into a core packaging company. It intends to invest $300 million through 2017 to further improve its North American containerboard mill system, enhance product quality, and reduce manufacturing and delivery costs. These projects are expected to have a collective internal rate of return of 20%. Moving forward, International Paper intends to focus more resources on high-return capital projects within its core businesses that can drive additional earnings growth.


On Jun 29, the company inked a definitive agreement to divest its foodservice business in China. Over the past couple of years, the company has strategically offloaded businesses in China to focus more on its U.S. operations. It believes that it could cater to the Chinese and Asian markets more effectively by supplying globally competitive products, primarily through its Ilim joint venture in Russia and exports from the U.S. and other parts of the world.

Last year, International Paper sold its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise, which specializes in packaging and related industries, for approximately RMB 1 billion ($150 million). These included 18 manufacturing plants involving employee strength of about 3,000.

Mergers and acquisitions remain a key strategy for International Paper to strengthen its long-term business proposition. In North America, the company envisions a large opportunity within its industrial packaging businesses, that generate the best margins in the industry. It is taking initiatives to drive further margin expansion over time across the business. International Paper has completed the acquisition of leading timberland owner Weyerhaeuser Co.’s pulp business for $2.2 billion in cash. With a combined capacity of nearly 1.9 million metric tons of pulp, the transaction is likely to strengthen International Paper’s position in the global fluff pulp market and augment its operating cash flow. In addition, the company expects the acquisition to generate annual synergies of approximately $175 million by the end of 2018. It also expects the deal to offer the company higher flexibility to manage a wide portfolio of products to meet customer needs through superior R&D capabilities and priceless patent portfolio.

Some better-ranked stocks in the industry include Fibria Celulose S.A. FBR, WestRock Company WRK and Clearwater Paper Corporation CLW, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fibria Celulose has a long-term earnings growth expectation of 18.4%.

WestRock has a long-term earnings growth expectation of 9.1%. It has beaten earnings estimates in each of the trailing four quarters with a positive surprise of 9.8%.

Clearwater Paper has a long-term earnings growth expectation of 5.0%.

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