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International Paper (IP) Remains Focused on Core Operations

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On Oct 3, Zacks Investment Research updated the research report on paper and packaging firm, International Paper Company (IP - Free Report) .

International Paper is undergoing restructuring initiatives to transform itself into a core packaging company. With the divesture of its distribution business xpedx in Jul 2004, the company's overall margins and return on invested capital have increased steadily. This was achieved through improvements in procurement, replenishment orders, stock keeping units and supply chain mechanisms. Moving forward, International Paper intends to focus more resources on high-return capital projects within its core businesses that can drive additional earnings growth.

Mergers and acquisitions remain a key strategy for International Paper to strengthen its long-term business proposition. In North America, the company envisions a large opportunity within its industrial packaging businesses, which continue to generate the best margins in the industry. The company is taking initiatives to further drive margin expansion over time across the business.

During second-quarter 2016, International Paper inked a definite agreement with leading timberland owner Weyerhaeuser Co. (WY - Free Report) to acquire the latter’s pulp business for $2.2 billion in cash. With a combined capacity of nearly 1.9 million metric tons of pulp, the transaction is likely to strengthen International Paper’s position in the global fluff pulp market and augment its operating cash flow. In addition, the company expects the acquisition to generate annual synergies of approximately $175 million by the end of 2018 along with a higher flexibility to manage a wide portfolio of products to meet customer needs through superior R&D capabilities and priceless patent portfolio.

The U.S. Department of Justice has recently concluded the Hart-Scott-Rodino review of this transaction. Other regulatory reviews for the transaction in other non-U.S. jurisdictions are currently in process. The acquisition is expected to be completed in the fourth quarter of 2016.

We remain encouraged with the inherent growth potential of this Zacks Rank #1 (Strong Buy) stock. A couple of other favorably ranked stocks in the industry include Domtar Corporation (UFS - Free Report) and Neenah Paper, Inc. (NP - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Domtar has a stellar earnings surprise history with an average positive earnings surprise of 85.3% in the trailing four quarters, comprehensively beating estimates in each quarter.

Neenah has a long-term earnings growth expectation of 10% and is currently trading at a forward P/E of 17.8x. Neenah has a positive earnings surprise history with an average of 9.8% in the trailing four quarters, comprehensively beating estimates in each quarter.

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