COMPANY DESCRIPTION

International Paper is a paper and packaging company with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia, Africa and the Middle East. Co.'s business is separated into four segments: Industrial Packaging, which manufactures containerboard in the U.S; Printing Papers, which includes uncoated and coated papers, uncoated bristols and pulp; Consumer Packaging, which produces solid bleached sulfate board.; and Distribution, which distributes products and services to a number of customer markets and also provides distribution capabilities including warehousing and delivery services.

 

ECONOMIC MOAT

IP’s economic moat comes from the industrial packaging division which accounts for about two thirds of annual revenue and operating profit. IP's industrial packaging division benefits from a low-cost production advantage, with 95% of its production capacity falling in the first and second quartiles of the global cost curve.  When IP sold its forest, it locked in long-term fiber supply agreements with the new landowners, which should ensure that IP's proximity advantage persists for at least another 10 years.

 

OUTLOOK

IP struggled over the course of 2014, and the revenues and income from continuing operations fell. IP has been restructuring its debt obligations. It pushed $1 billion of its borrowings out a year, to 2019.  IP may use its resources to repurchase stock or for other business investments. These shares offer good long-term total return possibilities. This issue holds healthy capital appreciation potential over the 2018-2020 span. Plus, its attractive dividend yield ought to tempt income-oriented accounts. To wit, IP increased its dividend 14% at the end of last year, to $1.60 on an annualized basis, and we look for additional hikes further down the road.

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STRENGTHS

  • Diversification across business areas and geographies

  • Strong research and development (R&D) capabilities

  • Broad product offering 

WEAKNESSES

  • Under-funded pension obligations

  • High indebtedness 

THREATS

  • Intense competition

  • Changes in the cost or availability of raw materials, energy and transportation could affect profitability

  • Negative impact of environmental laws and proceedings 

OPPORTUNITIES

  • Increasing demand for p packaging solutions for ecommerce shopping

  • Positive outlook for global wrapping and paper packaging market

  • Divestment of underperforming business 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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