How International Paper Stacks Up

Paper heavyweight International Paper (IP) continues to restructure its business, generating value for shareholders. The stock trades at the low end of our fair value range and boasts a relatively high dividend yield. Should investors be interested?

As with other highly cyclical industries, the paper products sector is prone to bouts of under-utilization and overcapacity. The sector's operating margins vary based on product mix, but most companies that specialize in paper and packaging achieve operating margins in the 7% to 10% range. For companies as small as Boise (BZ) and Clearwater Paper (CLW) and as large as International Paper and MeadWestvaco (MWV), a small change in operating margins can meaningfully affect operating income and free cash flow generation. Market demand in developed regions is primarily a product of GDP growth, as paper consumption per person continues to face pressure due to innovations in cloud storage and electronic communications (driving a secular decline in newsprint)....399 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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