With a daily gain of 3.13%, a 3-month gain of 10.39%, and an Earnings Per Share (EPS) of 2.91, International Paper Co (IP, Financial) has attracted significant investor attention. The question remains: is this stock significantly undervalued? This article provides a comprehensive valuation analysis to answer this question. Read on to gain valuable insights into the intrinsic value of International Paper Co.
Company Overview
International Paper Co, a prominent player in the packaging products and cellulose fibers industry, commands approximately one third of the North American corrugated packaging market. Despite having operations in Brazil, Russia, India, and China, over three-fourths of its sales are generated from North America. The company caters to a diverse range of end markets, including industrial, consumer products, and manufacturing.
Considering the current stock price of $34.63 and the GF Value of $53.46, it appears that the stock is significantly undervalued. This discrepancy paves the way for a deeper exploration of the company's intrinsic value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor derived from past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's ideal fair trading value.
International Paper Co's stock is believed to be significantly undervalued, according to the GuruFocus Value calculation. The current price of $34.63 per share and a market cap of $12 billion suggest that the stock is trading below its fair value. Given this undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Financial Strength
Assessing the financial strength of a company is a crucial step before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. A glance at the cash-to-debt ratio and interest coverage can provide a good understanding of a company's financial strength. International Paper Co has a cash-to-debt ratio of 0.12, which is worse than 75.75% of the companies in the Packaging & Containers industry. The overall financial strength of International Paper Co is 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. International Paper Co has been profitable for 10 of the past 10 years. The company had a revenue of $20.20 billion and an Earnings Per Share (EPS) of $2.91 over the past twelve months. Its operating margin is 7.43%, ranking better than 64.11% of the companies in the Packaging & Containers industry. Overall, International Paper Co's profitability is ranked 7 out of 10 by GuruFocus, indicating fair profitability.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of International Paper Co is 7.9%, ranking better than 53.52% of the companies in the Packaging & Containers industry. However, the 3-year average EBITDA growth rate is 3.1%, ranking worse than 58.58% of the companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide valuable insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, International Paper Co's ROIC was 9.57, while its WACC was 9.16.
Conclusion
In conclusion, International Paper Co's stock appears to be significantly undervalued. The company has fair financial strength and profitability. However, its growth ranks worse than 58.58% of the companies in the Packaging & Containers industry. For more information about International Paper Co's stock, you can check out its 30-Year Financials here.
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