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Analyst Blog

Shares of Neenah Paper Inc. (NP) scaled a new 52-week high of $53.69 during yesterday’s trading session, before closing a notch lower at $53.46. This translates to a healthy year-to-date return of 84.5%. Neenah Paper’s share prices have been on a steady uptrend since July 2013. The stock is currently trading at a forward P/E of 16.2x and has a long-term earnings growth expectation of 10.0%.

Growth Drivers

Neenah Paper recently re-launched its Environment Papers premium recycled product-line with new natural colors and a uniquely tactile finish. With this, Neenah Paper’s product portfolio will conform to evolving market standards and make it a perfect fit for sustainable communication programs, luxury packaging and digital print applications.

The upgraded product line is based on feedback from extensive market research and customer insights. With such improvisations, Neenah Paper is likely to see healthy growth in the forthcoming quarters. The company recorded a 41.8% year-over-year increase in earnings from continuing operations on a per share basis in the fourth quarter of 2013. Revenues also increased on the back of consistently strong growth at the company’s Technical Products and Fine Paper segments despite headwinds like rising material costs.

Operational synergies from the acquired Southworth brands helped Neenah Paper to taste success with its go-to-market strategy as well as drive higher value price and mix. Despite higher pulp prices, the company’s manufacturing efficiencies and improved productivity have ensured sustainable margin expansion. Besides its core areas of focus, Neenah Paper is also striving to diversify its product portfolio in order to drive further growth.

Neenah Paper’s overseas business is one of its key growth drivers. Notably, international sales grew 24% in the last reported quarter. The momentum is expected to continue in the coming quarters as well, aided by the company’s geographic expansion.

Neenah Paper increased its dividend on three occasions in 2013. The company also announced a 20% hike in the quarterly dividend payout for the first quarter of 2014. Incremental dividend payments form an integral part of Neenah Paper’s long-term strategy to provide attractive risk-adjusted returns to its stockholders.

Neenah Paper looks well positioned to capitalize on opportunities in growing markets through both organic and inorganic means. With a strong balance sheet, healthy cash flow and effective management, the company appears poised to exploit value-added opportunities to bolster its prospects.  

Other Stocks to Consider

Neenah Paper presently has a Zacks Rank #2 (Buy). Other players in the industry worth reckoning include Resolute Forest Products Inc. (RFP) and Fibria Celulose SA (FBR - Snapshot Report), both carrying a comparable Zacks Rank #2 (Buy), and KapStone Paper and Packaging Corporation (KS - Snapshot Report) that has a Zacks Rank #1 (Strong Buy).

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