On July 25, 2023, International Paper Co (IP, Financial) experienced a gain of 4.62%, with its stock price reaching $33.87. This stock movement is noteworthy, considering the company's substantial market cap of $11.8 billion and its impressive sales record of $20.9 billion. According to GuruFocus.com's unique GF Value, the stock is significantly undervalued, with a GF Value of $53.93.
International Paper Co, a renowned manufacturer of packaging products and cellulose fibers, is a major player in the North American corrugated packaging market, holding approximately one-third of the market share. Despite having operations in Brazil, Russia, India, and China, over three-fourths of its sales are generated in North America. The company serves a wide range of end markets, including industrial, consumer products, and manufacturing.
GF Value and Stock Valuation
The GF Value of a stock, a proprietary calculation by GuruFocus.com, estimates the intrinsic worth of the stock based on historical trading multiples, past performance, and future business performance projections. The GF Value Line represents the ideal trading value of the stock. If the stock price significantly exceeds the GF Value Line, it is overvalued and expected to yield poor future returns. Conversely, if it is significantly below the GF Value Line, its future returns are likely to be higher. Given International Paper Co's current price of $33.87 per share and its GF Value of $53.93, the stock is significantly undervalued.
Financial Strength Analysis
Investing in companies with weak financial strength poses a higher risk of permanent capital loss. Thus, it's crucial to examine a company's financial strength before deciding to purchase its stock. A good starting point is the cash-to-debt ratio and interest coverage. International Paper Co's cash-to-debt ratio of 0.1 is lower than 76.76% of companies in the Packaging & Containers industry. GuruFocus ranks International Paper Co's overall financial strength at 5 out of 10, indicating fair financial health.
Profitability Assessment
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. A company with high profit margins is typically a safer investment than those with low profit margins. International Paper Co has been profitable for 10 out of the past 10 years, boasting a revenue of $20.9 billion and Earnings Per Share (EPS) of $3.61 over the past twelve months. Its operating margin of 8.19% ranks better than 66.76% of its industry peers, indicating fair profitability.
Growth Evaluation
Growth is a critical factor in a company's valuation. Research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. International Paper Co’s 3-year average revenue growth rate is better than 55.71% of companies in the Packaging & Containers industry. However, its 3-year average EBITDA growth rate of 3.1% ranks worse than 57.75% of its industry peers.
ROIC vs WACC
Comparing a company’s return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, International Paper Co’s ROIC was 9.98, while its WACC came in at 8.66.
Conclusion
To sum it up, International Paper Co's stock is significantly undervalued. The company's financial condition is fair, and its profitability is also fair. However, its growth ranks worse than 57.75% of companies in the Packaging & Containers industry. To learn more about International Paper Co stock, you can check out its 30-Year Financials here.
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