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International Paper (IP) Hits 52-Week High: What's Driving It?

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·4 min read
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Shares of International Paper Company IP scaled a fresh 52-week high of $53.74 during the Mar 3 trading session, before retracting to close at $53.22. Solid packaging demand and growing e-commerce activities in the wake of the coronavirus pandemic as well as focus on acquisitions have contributed to this price appreciation.

Share Price Performance

International Paper’s shares have gained 45.7% over the past year compared with the industry’s rally of 46.7%.

Positive Earnings Surprise History

International Paper has a trailing four-quarter average earnings surprise of 43.1%.

Driving Factors

International Paper is witnessing stellar demand driven by processed food, beverage, proteins, chemicals, paper tissue and towel. The company will continue to benefit from the surging e-commerce demand as it has become a primary spending channel for customers owing to the pandemic-induced restrictions. Notably, corrugated packaging demand remains resilient in the current year as it plays a key role in the supply chain to bring essential products to consumers. Moreover, the Global cellulose fibers segment is well poised to gain from healthy demand for absorbent hygiene products and tissue products amid the pandemic.

International Paper continuously evaluates its operations for improvement opportunities by focusing on core businesses, re-aligning capacity to operate fewer facilities with the same revenue capability, closing high cost facilities, and trimming costs. In sync with this, last December, the company announced its plan to spin off the Printing Papers segment into a stand-alone, publicly-traded company (SpinCo) to focus on the Industrial Packaging segment, and tap the growing demand for corrugated packaging, cut costs and improve earnings. Earlier, the company had divested its consumer packaging business in North America to Graphic Packaging Holding Company GPK.

Mergers and acquisitions remain a key strategy for International Paper to strengthen its packaging business. In fact, in North America, the company envisions a large opportunity within its industrial packaging businesses, which continues to generate the best margins in the industry. Recently, International Paper acquired Berkley International's Molded Fiber (pulp) manufacturing unit, Berkley MF LLC, in a bid to strengthen its sustainable packaging technology for e-commerce and food packaging applications.

International Paper’s efforts to reduce debt levels also look encouraging. Its total debt has gone down from $11 billion at the end of 2016 to $8.1 billion as of Dec 31, 2020. In addition, cash and temporary investments aggregated $595 million as of Dec 31, 2020 compared with $511 million as of Dec 31, 2019. The company is committed to a sustainable dividend, with a target range of 40% to 50% of free cash flow.

Positive Growth Projections

The Zacks Consensus Estimate for the ongoing-year earnings is currently pegged at $3.85 per share, indicating year-over-year growth of 37.5%.

Zacks Rank & Stocks to Consider

International Paper currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the basic materials space include Fortescue Metals Group Limited FSUGY and Impala Platinum Holdings Limited IMPUY. While Fortescue sports a Zacks Rank #1 (Strong Buy) Impala Platinum carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortescue has a projected earnings growth rate of 84.3% for the current fiscal year. The company’s shares have soared 182% in a year’s time.

Impala Platinum has an expected earnings growth rate of 195.9% for the current fiscal year. The company’s shares have surged 84% in the past year.

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