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Bear of the Day: International Paper (IP)

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Thanks to the wild weather over the past few months, a number of companies have been negatively impacted. While many might have focused on how these storms impacted air travel and other transportation companies, the storms have had a devastating impact on a number of other businesses too.

This includes International Paper (IP - Free Report) , as the company had significant trouble in moving product out of its key Southeastern United States operations. In fact, the CEO said that the terrible weather has cost the company between $40 million and $50 million, and approximately 40,000 tons of production volume as well.

Obviously this puts IP in a rough spot to start the year, and it doesn’t help that many of the broader trends in the space aren’t shaping up too well either. After all, the world is going digital at a furious pace and many of IP’s products just aren’t in as high of demand as they used to be.

This is particularly true given the recent slowdown in some of the world’s key emerging markets. With weakness in places like China, International Paper could have greater difficulty in boosting revenues in the months ahead. So with this backdrop, it shouldn’t be too surprising to note that earnings estimates have been on a downward spiral for IP over the past few weeks.

Earnings Estimate Revisions for IP

Estimates have been on a terrible trend over the past two months for International Paper, as not a single analyst has revised their estimate higher for either the current quarter or the current year. Instead, 4 estimates have gone lower in the past sixty days, pushing the current quarter profit estimate down from 93 cents a share two months ago to just 65 cents a share today.

This trend has also trickled into the current year and next year figures as these estimates have also seen some heavy downward revisions in the past two months. Next year’s estimates are especially weak, as profit expectations of $4.88/share two months ago have fallen to just $4.45/share today.

However, it should be noted that IP is still expected to see double digit earnings growth for both this year and next year. Current figures have both periods with growth just under 20%, though the current quarter’s projected earnings contraction looks to act as a drag on the stock in the near term.

Due to this, International Paper has fallen to a Zacks Rank #5 (Strong Sell) meaning that we are looking for more underperformance from this company in the near term. And though the longer term picture appears to be relatively intact following the recent drop, it may be prudent to wait on IP until analyst earnings estimates start to move in the right direction.

Better Picks

Many companies in the paper & related products industry have experienced weakness in their share prices as of late, with several seeing losses in the first half of March. However, a few do appear well positioned for a rebound, at least when you look at recent earnings estimate revision activity in the space.

In particular, Resolute Forest Products could be a much better selection for investors at this time. The company receives a Zacks Rank #1 (Strong Buy) and it has seen earnings estimates move higher in the past two months, suggesting that it may be a better short-term pick than the struggling IP which may be in for a very rough earnings report pretty soon.

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