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Here's Why You Should Invest in International Paper (IP) Now

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International Paper Company (IP - Free Report) is gaining on strong demand for corrugated packaging and e-commerce activities in the wake of the coronavirus pandemic. Mergers and acquisitions have been acting as tailwinds for its packaging business. The company also continuously strives to realign capacity, close high cost facilities, and divest businesses that, in turn, aids it to focus more on core businesses, boost margins and strengthen balance sheet.

International Paper currently sports a Zacks Rank #1 (Strong Buy). It has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1, 2 (Buy) or 3 (Hold), offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

International Paper’s shares have gained 9.8% over the past year, compared with the industry’s growth of 8.7%.

Positive Earnings Surprise History: International Paper has an impressive earnings surprise history. It beat estimates in each of the trailing four quarters, the average surprise being 47.5%.

Estimate Revision Activity: The Zacks Consensus Estimate for 2021 earnings has been revised upward by 51% over the past 60 days. The estimate for fiscal 2022 has moved north by 93% over the past 90 days.

Solid Growth Projections: Over the past five years, International Paper has witnessed an earnings growth of 5.8%, higher than the industry’s 4.8%. The Zacks Consensus Estimate for 2021 earnings projects year-over-year growth of 33%. The estimate for the next year indicates year-over-year improvement of 23%.

Growth Drivers in Place

Pandemic Driven Demand: The company is witnessing strong demand driven by processed food, beverage, proteins, chemicals, paper tissue and towel. The company will continue to benefit from growing e-commerce demand as it has become a primary spending channel for customers owing to restrictions amid the coronavirus pandemic. Further, corrugated packaging plays a critical role in supply chain to bring essential products to consumers. Moreover, the Global cellulose fibers segment is well-poised on the pandemic induced strong consumer demand for absorbent hygiene products and tissue products.

Focus on Core Business: International Paper continually evaluates its operations for improvement opportunities by focusing on core businesses, realigning capacity to operate fewer facilities with the same revenue capability, closing high cost facilities, and trimming costs. It has recently entered into an agreement to sell its corrugated packaging business in Turkey due to bleak economic conditions in the country. In December 2020, the company announced its plan to spin-off the Printing Papers segment into a standalone, publicly-traded company (SpinCo) to focus on its Industrial Packaging segment, and tap growing demand for corrugated packaging, cut costs and improve earnings. Earlier it divested its consumer packaging business in North America to Graphic Packaging Holding Company (GPK - Free Report) .

The company intends to invest significantly to improve its North American containerboard mill system, enhance product quality, and reduce manufacturing and delivery costs.

M&A Strategy: Mergers and acquisitions remain a key strategy for International Paper to strengthen its packaging business. In North America, the company envisions a large opportunity within its industrial packaging businesses, which continues to generate best margins in the industry. The company is also taking initiatives to drive margin expansion over time across the business.

Strong Liquidity: The company's efforts to reduce debt levels also appear encouraging. As of Sep 30, 2020, its total debt to total capital ratio is at 0.55, lower than the industry’s 0.80. The company’s times interest earned ratio of 3.0 compares favorably with the industry’s negative 3.3. Management has taken various actions to strengthen the company’s liquidity position that include entering into a $750 million revolving credit agreement and amending the receivable securitization program from uncommitted to committed financing.

Other Stocks to Consider

Some other top-ranked stocks worth considering in the basic materials space include Fortescue Metals Group Limited (FSUGY - Free Report) and Impala Platinum Holdings Limited (IMPUY - Free Report) .

Fortescue has a projected earnings growth rate of 75.5% for the current fiscal. The company’s shares have soared around 141% in a year. It currently sports a Zacks Rank #1.

Impala Platinum has an expected earnings growth rate of 189.4% for the current fiscal. The company’s shares have rallied around 32% in the past year. It currently flaunts a Zacks Rank #1.

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Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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