Rising earnings estimates on the back of reports suggesting the
successful implementation of $50 per ton price increase by
containerboard producers in September helped
International Paper Co.
) achieve a Zacks #1 Rank (Strong Buy) on October 2. This global
paper and packaging company has delivered positive earnings
surprises in three of the last four quarters with an average beat
Moreover, the stock hit its 52-week high of $37.25 on September
24. With a solid year-to-date return of 21.6%, good track record of
beating quarterly earnings estimates, revenue growth better than
its peers and long-term earnings growth projection of 6%, this
stock offers an attractive investment opportunity.
The Rank Driver
Revenue growth better than its peers, successful implementation
of price increases, merger and acquisition strategy, smooth ongoing
integration of Temple Inland and expected synergies, expansion in
India, Russia and China are the primary rank drivers for this
It is also worth mentioning that the International Paper and
Temple Inland combination will fortify the packaging business of
North America by increasing its share in the corrugated packaging
market to 34% from the current level of 27%.
On July 26, 2012, International Paper reported second-quarter
2012 adjusted earnings of 46 cents per share, down 41.8% from 79
cents per share earned in the prior-year quarter. Results also fell
short of Zacks Consensus Estimate by 2.1%.
Net sales rose 6.5% year over year to $7.08 billion, but missed
the Zacks Consensus Estimate of $7.31 billion. Segment operating
income decreased 13.4% year over year to $426 million.
Cash flow from operating activities improved to $1.4 billion
during the first half of 2012 compared with $1.2 billion in the
year ago period. Debt-to-capitalization ratio was 62.9% as of June
30, 2012, compared with of 62.2% as of March 31, 2012, and 59.9% as
of December 31, 2011
Earnings Estimate Revisions
The Zacks Consensus Estimate for 2012 increased 2.8% to $2.56
per share as 6 out of 13 estimates were raised over the last 30
days. However, the current estimate implies a year-over-year
decline of 17.4%.
For 2013, 8 out of 13 estimates were revised higher over the
same time frame, lifting the Zacks Consensus Estimate by 5.4% to
$3.62 per share. This implies an annual growth of 41.2%.
International Paper currently trades at a forward P/E of 14.0x,
a 7% premium to the peer group average of 13.0x. Also, on a
price-to-book basis, the shares are trading at 2.22x, a 178%
premium to the peer group average of 0.8x. Given the company's
strong fundamentals, the premium valuation is justified.
International Paper has a trailing 12-month ROE of 15.6%
compared with the peer group average of 4.8%.
About the Company
Headquartered in Memphis, Tennessee, International Paper is a
global paper and packaging company with operations in North
America, Europe, Latin America, Russia, Asia, and North Africa.
International Paper conducts its businesses through four segments -
Industrial Packaging, Distribution Segment or Xpedx, Printing
Papers and Consumer Packaging segment. The company has a market
capitalization of roughly $15.74 billion.
Among other paper and packaging stocks, we currently have Zacks
#1 Rank on
INTL PAPER (IP): Free Stock Analysis Report
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