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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