Key Stats for International Paper Co
With the holiday season over and the gifts unwrapped, isn't time to look at some stocks! How about a paper biz?
| Ticker | IP |
|---|---|
| Sector | Other Paper Packaging |
| Latest price | $54.05 |
| Value | $22,226M |
| Daily vol | $106M |
| Date | 05 January 2017 |
Useful Links
- Latest news from Google Finance and Yahoo Finance
- Latest results from SEC Edgar
- Website: internationalpaper.com
Description
International Paper Company is a paper and packaging company. The Company operates in three segments: Industrial Packaging, Printing Papers and Consumer Packaging. It is a manufacturer of containerboard, a producer of printing and writing papers, uncoated papers and pulp, and packaging materials.
They have pulp, paper and packaging mills, converting and packaging plants, recycling plants and bag facilities across the globe. They even manage hundreds of thousands of acres of forest, primarily in Brazil and Russia!
Looking at the 3 divisions, it's Industrial Packaging that makes up circa 80% of profits. With Print Paper and Consumer Packaging yoyoing between profit and loss each year. And within the Industrial Packaging unit, North America is over 85% of sales and more than 100% of profits, with the non-US businesses looking like they are both subscale and troubled. :(
And a further word of warning, this is a capital intensive business... with $7bn of capex in the last 5 years. It's scary the $1bn in net income translates into just $500m of free-cashflow.
Recent financials
Sales and earnings have been variable to say the least. In a great year it's a 7% margin business, in a bad year just half that.
| Metric | 2015A | 2014A | 2013A | 2012A | 2011A |
|---|---|---|---|---|---|
| Revenue | $22bn | $24bn | $23bn | $22bn | $19bn |
| EPS | $2.25 | $1.30 | $3.15 | $1.82 | $3.06 |
Of course, one of the off things about IP is the annual "special charges" that they carve out in their reports. Unsurprisingly, "Operating Earnings" are higher than reported. And no doubt they like shareholders to focus on these! I hate these number games, but it's bahumbug with me, all year, not just round Christmas-time.
Competition
And the turn nature of the business bears out in the annual reports, when they talk about the competition.
The markets in the pulp, paper and packaging product lines are large and fragmented. The major markets, both U.S. and non-U.S., in which the Company sells its principal products are very competitive. Our products compete with similar products produced by other forest products companies. We also compete, in some instances, with companies in other industries and against substitutes for wood-fiber products.
When it comes to a peer group they highlight: Domtar, Fibria Celulose, Klabin, Metsa, Mondi, Packaging Corporation of America, Smurfit Kappa, Stora Enso, UPM-Kymmene and WestRock.
Looking a adjusted margins, they are far from best in class, though at least they've got a reasonable return on equity. Reading their annual, it is fair to say that management is focussed nicely on "returns of invested capital".
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| International Paper Co | $21,141M | 14% | 20% |
| Fibria Celulose SA (ADR) | $3,130M | 40% | 3% |
| Klabin SA (ADR) | $2,090M | 34% | -ve |
| Metsa Board Oyj | €2,008M | 11% | 15% |
| Mondi Plc | £5,805M | 19% | 22% |
| Packaging Corp Of America | $5,693M | 20% | 26% |
| Smurfit Kappa Group Plc | €8,109M | 14% | 18% |
| Stora Enso OYJ (ADR) | $10,330M | 14% | 15% |
| UPM-Kymmene Corporation (ADR) | $10,392M | 14% | 12% |
| WestRock Co | $14,172M | 14% | 1% |
Cash / Debt?
International Paper Co has $8,339M of net debt. That is 2.8x it's latest operating profit. It's high, yes, not excessively high. But clearly something to keep in mind. Especially since there is a $3bn gap between IP's pension obligations and its employee pension fund's assets.
Wall Street thinks?
The professionals on Wall Street have a $51.00 for IP and that implies a downside of -5% to their target. :( So no surprise that their recommendation to clients is Hold.
Valuation
In a stock market that's flying high, trading on over 20x earnings, 16x doesn't look expensive. Other US listed paper biz like PKG and WRK trade a little higher too. So perhaps it's a little surprising that Wall Street's got a "Hold" on the stock.
| View Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| IP | $22,226M | 16x | 6% | 3% | 12% |
| FBR | $5,389M | 8x | 42% | 2% | 9% |
| KLBAY.PK | $5,777M | 2x | N/A | 1% | 5% |
| METSB.HE | €2,383M | 25x | 13% | 3% | 13% |
| MNDI.L | £8,009M | 14x | 4% | 3% | 14% |
| PKG | $8,138M | 18x | 9% | 3% | 12% |
| SKG.I | €5,317M | 11x | 4% | 3% | 18% |
| SEOAY.PK | $8,391M | 15x | -2% | 3% | 19% |
| UPMKY.PK | $12,988M | 14x | -2% | 4% | 15% |
| WRK | $13,025M | 18x | -1% | 3% | 13% |
Though I suspect that's because 16x if forecast "adjusted" earnings, not what'll get reported.
Dividends
International Paper Co is forecast to pay a dividend of $1.79 per share, compared with a forecast EPS of $3.34. Though I fear that's "Operating Earnings" not reported.
Though it's not just regular dividends at IP, as they've managed to buy back between $500m and $1bn of stock yearly for the last 4 years.
Catalysts
In the last 3 months the stock price has moved by 14% that compares with a change in the earnings forecasts of -4%. That's against a backdrop of sales off 7% in the 9 months to Sept.
On the management team's latest call with Wall Street brokers, they said
International Paper continues to deliver solid performance in a global environment that presents plenty of challenges.
Oh... and
we are seeing some near-term margin squeeze across many of our businesses as some price erosion has occurred while input costs have turned up.
So, it really doesn't feel like the New Year is bringing gifts to $IP.
What do you think?
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Disclosure: I have a position in $WRK, and none in the other stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted January 05, 2017 at 04:52PM by shane_stockflare http://ift.tt/2jge5vx
