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

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International Paper Company (IP - Free Report) is gaining from forecast-beating first-quarter 2022 results. Solid demand for corrugated and containerboard packaging and fluff pulp are aiding growth. Benefits from price realization across the company’s segments and the expected contribution from Building a Better IP initiatives will help offset higher costs and support margins.

Earnings & Sales Surpass Q1 Estimates: International Paper reported impressive first-quarter 2022 results, with earnings and sales beating the respective Zacks Consensus Estimates and increasing year over year.

Positive Earnings Surprise History: International Paper, a Zacks Rank #3 (Hold) company, has a trailing four-quarter earnings surprise of 7.3%, on average.

Positive Growth Expectations: The company’s earnings estimate for the current year is pegged at $4.76, suggesting year-over-year growth of 48.7%.

Balance Sheet Strength: The company's efforts to reduce its debt levels appear encouraging. International Paper’s total debt has gone down from $11 billion at the end of 2016 to $5.6 billion as of the end of 2021. The company’s total debt to capital ratio has gone down considerably over the past few years and stood at 0.38 as of Mar 31, 2022. Its times-interest-earned ratio was 4.4. The company has limited near-term maturities, with about $900 million due over the next five years.

Price Performance: International Paper’s shares have gained 7.4% in the past three months compared with the industry’s growth of 1.4%.

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Growth Drivers

Benefits of strong price realization from price hikes are helping International Paper counter higher input and energy, chemical and distribution costs. This will help the company sustain margins in the coming quarters. The company expects its segments’ margins to expand in the second quarter, with further expansion in the second half of the year as price realization outpaces higher input costs. The company completed the highest maintenance outage quarter of the year, expecting to achieve 70% of its planned maintenance in the first half of the year. IP is committed to delivering a net $350-$400 million in incremental earnings by the end of 2024. These include around $300 million in cost-reduction initiatives and $50 million through commercial and investment initiatives.

International Paper projects EBITDA to be $3.1-$3.4 billion in 2022 compared with $2.6 billion in 2021. The company achieved $40 million of earnings through Building a Better IP initiatives in the first quarter of 2022 and is on track to meet the gross incremental earnings target of $200-$225 million in 2022.

IP continues to witness strong demand for corrugated and containerboard packaging in its Industrial Packaging segment. It plays a critical role in the supply chain in bringing essential products to consumers. A favorable supply-demand backdrop for fluff pulp is aiding the Global cellulose fibers segment.

Last October, International Paper completed its spin-off of the Printing Papers segment into a standalone, publicly-traded company, Sylvamo (SLVM - Free Report) . IP received a $1.4-billion payment from Sylvamo. The company retained up to 19.9% of the shares of the new company. Recently, the company monetized about half of its investment with proceeds of $144 million. This reduces the company’s ownership interest to about 10.5%. This spin-off will enable International Paper to focus on its Industrial Packaging segment and capitalize on the growing demand for corrugated packaging, cut costs and improve earnings. This also supports the company’s aim to streamline and simplify its organization to form a packaging-focused company.

International Paper expects continued elevated costs for chemicals, energy and distribution in the second quarter of 2022. Significant rail, truck and ocean transportation congestion due to challenging transportation conditions will continue in the near term.

Stocks to Consider

Some better-ranked stocks in the basic materials space are Allegheny Technologies Inc. (ATI - Free Report) and Albemarle Corporation (ALB - Free Report) .

Allegheny has a projected earnings growth rate of 869.2% for the current year. The Zacks Consensus Estimate for ATI's current-year earnings has been revised 27.3% upward in the past 60 days.

Allegheny’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 128.9%, on average. ATI has gained around 15.2% in a year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle has a projected earnings growth rate of 175% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 85.8% upward in the past 60 days.

Albemarle’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.5%. ALB has gained 49.8% in a year. The company flaunts a Zacks Rank #1.