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International Paper (IP) to Invest More in Alabama Mill

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International Paper Company (IP - Free Report) recently announced that it will almost double planned investments in the Alabama factory in order to meet consistently growing market demand. The paper and packaging firm will increase its planned investment from $300 million to $552.7 million in its Riverdale Mill in Selma, AL.

The company intends to convert its No.15 paper machine in Selma to manufacture white top linerboard and containerboard, which have a strong customer base.  

At present, International Paper is the largest employer in Dallas County, with more than 750 regular employees and various other indirect jobs. The conversion or upgrade of the manufacturing unit is expected to be completed by the middle of 2019.

Management’s decision will therefore make International Paper more cost effective and competitive. International Paper is also entitled to enjoy the benefits of the Alabama Reinvestment Act. As a result, the company will be able to fully concentrate on those activities that have a better market prospects and hence will contribute to earnings per share.

International Paper has underperformed the industry in the last three months, with a return of 2.1% against growth of 10.1% for the latter.

The company intends to invest significantly in improving its North American containerboard mill system, enhancing product quality and reducing manufacturing and delivery costs. At the same time, International Paper is undergoing restructuring initiatives to transform itself into a core packaging company. Further, the company has strategically offloaded businesses in China to focus more on its U.S. operations. It believes that it could cater to the Chinese and Asian markets more effectively by supplying globally competitive products primarily through its Ilim joint venture in Russia and through exports from the United States and other parts of the world.

International Paper also completed the divesture of its consumer packaging business in North America to Graphic Packaging. The divesture has helped the company to focus on its core businesses and strengthen its balance sheet as Graphic Packaging assumed $660 million of its debt.

International Paper currently has a Zacks Rank #2 (Buy). A few other top-ranked stocks in the industry are Domtar Corporation (UFS - Free Report) , KapStone Paper and Packaging Corporation and Veritiv Corporation (VRTV - Free Report) each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Domtar has an expected long-term earnings growth rate of 5%. It has exceeded estimates thrice in the trailing four quarters with an average beat of 21%.

KapStone Paper has an expected long-term earnings growth rate of 14%.

Veritiv has an expected long-term earnings growth rate of 10.7%. It has exceeded estimates thrice in the trailing four quarters with an average beat of 17.6%.

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