International Paper Co. (IP) in Memphis, Tenn., is a global leader in the production of renewable fiber-based products. It provides corrugated packaging materials that preserve and promote goods while also facilitating worldwide commerce and pulp for diapers, tissue, and other personal hygiene products that promote health and well-being.
The company's shares rose 5.6% in price in premarket trading last week after the paper and packaging firm posted a first-quarter profit that exceeded expectations by a wide margin and said it anticipated margin improvement in the current quarter as earlier pricing hikes outstrip increasing expenses.
In terms of forward non-GAAP P/E, the stock is currently trading at 9.96x, which is 16.7% lower than the 11.96x industry average. Also, its 1.03 forward EV/Sales of 1.03x is 34.9% lower than the 1.58x industry average. Furthermore, IP's 1.90x forward Price/Book is 18% lower than the 2.32x industry average.
Here is what could shape IP's performance in the near term:
Positive Development
In March, the United States Department of Energy (DOE) honored International Paper for agreeing to cut GHG emissions by 35% by 2030, in accordance with the best available climate science, and for collaborating with DOE to evaluate effective solutions and decarbonization initiatives. As a participant in the DOE's Better Climate Challenge, International Paper is one of more than 80 organizations from throughout the United States' economy that is rising to the occasion and pushing real-world action toward a low-carbon future.
Robust Financials
During the first quarter, ended March 31, 2022, IP's net sales increased 14% year-over-year to $5.24 billion. The company's net income grew 3.2% from its year-ago value to $360 million, while its EPS grew 7.9% from the prior-year quarter to $0.95. In addition, its cash from operations for the first quarter came in at $588 million.
Strong Profitability
IP's 8.8% trailing-12-months net income margin is 4.3% higher than the 8.5% industry average. Also, its levered FCF margin, asset turnover ratio, and ROA are 147.3%, 1.6%, and 37.8% higher than the respective industry averages. Furthermore, its $2.11 billion in cash from operations is 481.9% higher than the $361.93 million industry average.
Impressive Growth Prospects
The Street expects IP's revenues and EPS to rise 10% and 47.2%, respectively, year-over-year to $21.29 billion and $4.71 in its fiscal 2022. In addition, IP's EPS is expected to rise at a 19.2% CAGR over the next five years.
Consensus Rating and Price Target Indicate Potential Upside
Among the three Wall Street analysts that rated IP, three rated it Buy, and four rated it Hold. The 12-month median price target of $51.75 indicates a 6.7% potential upside. The price targets range from a low of $41.00 to a high of $60.00.
POWR Ratings Reflect Solid Prospects
IP has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. IP has a B grade for Quality and Value. IP's solid earnings and revenue growth potential is consistent with its Quality grade. In addition, the company's lower-than-industry multiples are in sync with the Value grade.
Of the 14 stocks in the A-rated Industrial – Paper industry, IP is ranked #7.
Beyond what I have stated above, we have graded IP for Sentiment, Stability, Growth, and Momentum. Get all IP ratings here.
Bottom Line
IP is a leading paper and packaging firm with a diverse product line and a global market presence. Given the company's strong fundamentals and discounted valuation, we believe the stock might be a good addition to one’s portfolio at the current price level.
How Does Industrial - Paper (IP) Stack Up Against its Peers?
IP has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Industrial Paper industry with B (Buy) ratings: Klabin S.A. (KLBAY) and Dai Nippon Printing Co. Ltd. (DNPLY).
IP shares were unchanged in premarket trading Thursday. Year-to-date, IP has gained 4.25%, versus a -9.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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