U.S. Markets closed

Paper Cuts: KeyBanc Downgrades International Paper, Westrock, Packaging Corp. Of America

Priya Nigam

The paper sector is witnessing deteriorating fundamentals in containerboard, pulp and uncoated freesheet, according to KeyBanc Capital Markets. 

Despite industry fundamentals being worse than in recent years, shares of International Paper Co (NYSE: IP), Westrock Co (NYSE: WRK) and Packaging Corp Of America (NYSE: PKG) are trading in-line with or higher than their historical averages, according to the sell-side firm. 

The Analyst

Adam Josephson downgraded International Paper ($38 price target), Westrock ($32 PT) and Packaging Corp. Of America ($89 PT) from Sector Weight to Underweight.

The Thesis

Although the shares of International Paper, WestRock and Packaging Corp of America have underperformed over the past year, there seems to be further downside to KeyBanc’s below-consensus estimates for 2020, Josephson said in a Sunday downgrade note. (See his track record here.)

Although KeyBanc’s estimates are below the consensus, they do not reflect any further price declines, the analyst said. Additional price declines will result in downside to the estimates, he said.

Paper industry prices seem to be on a downtrend following years of market strength, Josephson said. 

“Given our belief that estimates likely have further room to fall, the fact that our 2020 estimates are based on margins no lower than historical averages, and the fact that multiples on our 2020 estimates are no lower than historical averages, we are of the view that the stocks will do no better than perform in line with the sector over the next 9-12 months, and in fact are more likely to underperform." 

Price Action

International Paper shares were down 1.92% at the time of publication Monday, while Westrock shares were down 3.68% and Packaging Corp. shares were down 2.75%. 

Related Links:

Benzinga's Top Upgrades, Downgrades For July 11, 2019

30 Stocks Moving In Monday's Pre-Market Session

Latest Ratings for IP

Date Firm Action From To
Jul 2019 Downgrades Sector Weight Underweight
Jul 2019 Downgrades Buy Neutral
Apr 2019 Downgrades Buy Neutral

View More Analyst Ratings for IP
View the Latest Analyst Ratings

See more from Benzinga

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.