International Paper Company (IP - Free Report) looks promising at the moment, backed by favorable demand trends across all its segments, restructuring initiatives, investment in high-return capital projects, and mergers and acquisitions.
Recently, the company reported first-quarter 2019 results. Adjusted earnings in the quarter were $1.11 per share, improving 18% from the prior year. The bottom-line figure also outpaced the Zacks Consensus Estimate. Net sales improved to $5,643 million in the quarter from $5,621 million recorded in the year-ago quarter.
The stock has gained around 9.4% year to date, outperforming the industry’s growth of 8.0%.
Below, we briefly discuss few other factors that make the stock worth holding on to.
Underpriced: Looking at the trailing 12 month Enterprise Value to EBITDA ratio, International Paper’s shares are underpriced at the current level. The company has a trailing EV/EBITDA ratio of 5.2, which is below the industry average of 6.0.
Positive Earnings Surprise History: International Paper has an impressive earnings surprise history. It outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 9.94%.
Upbeat 2019 Guidance: The company guides adjusted EBITDA to lie between $4.2 billion and $4.3 billion in 2019. In the North American Industrial Packaging business, box demand remains solid, aided by e-commerce and produce. The momentum will continue in 2019 as well. Further, the company’s focus to serve the rapidly-growing segments will be an important contributor to the strong performance. Its concerted efforts to align with the customers will also aid the company’s performance.
In Europe, benefits of the Madrid mill will accelerate through the year. In the Global Cellulose Fibers business, global pulp demand remains strong and demand in the fluff segment continues to grow. Product introductions in the fluff pulp segment and its optimization initiatives are likely to drive the company’s performance. In the Printing Papers segment, improved global demand will bolster segment revenues.
Other Growth Drivers: International Paper is undergoing restructuring initiatives to transform itself into a core packaging company. The company has strategically offloaded businesses in China to focus more on its U.S. operations. It has also completed the divestiture of its consumer packaging business in North America. Further, International Paper intends to invest significantly to improve its North American container-board mill system, enhance product quality, and reduce manufacturing and delivery costs.
Moreover, International Paper aims to utilize its sound cash flow by investing in high-return capital projects, reducing total debt and returning greater proportion of cash to shareholders through increased dividend payouts and share repurchases. These projects are expected to have a collective internal rate of return of 20%.
International Paper has a long-term earnings growth rate of 5%.
Favorable Rank, Score Combination: International Paper carries a Zacks Rank #3 (Hold) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum. The company’s score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. In fact, our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, make solid investment choices.
Return on Equity (ROE): International Paper’s trailing 12-month ROE of 31.3% reinforces its growth potential. The company’s ROE is higher than the ROE of 18.8% for the industry, highlighting its efficiency in utilizing shareholders’ funds.
International Paper Company Price and Consensus