International Paper Company
IP Details
International Paper Company (NYSE: IP) is a global producer of renewable fiber-based packaging, pulp, and paper with manufacturing plants in North America, Latin America, North Africa, and Europe. Industrial Packaging and Global Cellulose Fibers are the company's two main segments. Industrial, consumer products, and manufacturing are among the end markets served by the firm.
Latest News:
- Strategic Plans: IP declared its intention to examine strategic options, including the possible sale of its 50% ownership interest in Ilim Group, the Russian pulp and paper industry's leader, on March 11, 2022. Concerning Ilim Group, IP has no plans to seek a suspension of operations or to commence any liquidation or bankruptcy procedures.
FY21 Results:
- Expansion in Topline: Higher sales volumes, a higher average sales price, and a favorable mix helped the company increase net sales by 10.24% YoY to USD 19.36 billion in FY21 (ended December 31, 2021) from USD 17.57 billion in FY20.
- Rise in Profitability: IP's net income climbed to USD 1.75 billion in FY21 from USD 482 million the previous year.
- Decent Balance Sheet: The company had USD 1.54 billion in cash and cash equivalents (including current investments) as of December 31, 2021, and total debt of USD 5.58 billion.
Key Risk:
- Strong reliance on Raw Materials: The company relies mainly on utilizing certain raw materials (For Ex. virgin wood fibre, recycled fibre, caustic soda, starch, and adhesives) and energy sources (such as biomass, natural gas, electricity, and fuel oil) from third-party transportation companies. Changes in the costs and availability of raw materials, energy sources, and transportation sources have had and will continue to impact its profitability.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation:
IP's stock price has fallen 20.93% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 40.45 to USD 61.80. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 56.00. IP is regarded as a well-run business with a proven track record in its industry. On the other side of the pandemic, the company believes there will be a significant demand for its products and services.
Considering the significant correction in the stock price, solid topline and bottom-line performance, steady dividend yield, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 45.90, down 0.86% as of April 04, 2022.
Three-Year Technical Price Chart (as of April 04, 2022). Source: REFINITIV, Analysis by Kalkine Group
Technical Analysis Summary:
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
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