International Paper Co (IP, Financial) has seen a daily gain of 2.68%, and a three-month gain of 12.66%. With an Earnings Per Share (EPS) (EPS) of 2.91, the question arises: Is the stock significantly undervalued? This article aims to answer this question by providing an in-depth analysis of the company's valuation. Read on to understand the true worth of International Paper Co (IP).
A Snapshot of International Paper Co (IP, Financial)
International Paper Co (IP) is a major player in the packaging products and cellulose fibers industry. It holds approximately one-third of the North American corrugated packaging market. With operations in Brazil, Russia, India, and China, the company generates more than three-fourths of its sales from North America. It serves a variety of end markets, including industrial, consumer products, and manufacturing. The company's stock price stands at $34.63, while its estimated fair value (GF Value) is $53.44, suggesting that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value is a measure of a stock's intrinsic value, derived from a unique methodology. It considers three factors: historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's ideal trading value. If the stock price is significantly above the GF Value Line, it may be overvalued, indicating poor future returns. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued, suggesting higher future returns.
International Paper Co (IP, Financial) appears to be significantly undervalued according to GuruFocus' valuation method. At its current price of $34.63 per share, International Paper Co has a market cap of $12 billion, and the stock seems to be significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Before investing in a company, it's vital to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide insight into a company's financial health. International Paper Co's cash-to-debt ratio stands at 0.12, which is lower than 75.2% of 375 companies in the Packaging & Containers industry. The overall financial strength of International Paper Co is 5 out of 10, indicating fair financial health.
Profitability and Growth
Consistent profitability over the long term reduces the risk for investors. Higher profit margins usually suggest a better investment compared to a company with lower profit margins. International Paper Co has been profitable for 10 out of the past 10 years. Over the past twelve months, the company generated a revenue of $20.20 billion and an Earnings Per Share (EPS) (EPS) of $2.91. Its operating margin is 7.43%, ranking better than 62.47% of 381 companies in the Packaging & Containers industry. Overall, International Paper Co's profitability is ranked 7 out of 10, indicating fair profitability.
One of the most crucial factors in a company's valuation is its growth . Companies that grow faster create more value for shareholders, especially if the growth is profitable. The average annual revenue growth of International Paper Co is 7.9%, ranking better than 53.17% of 363 companies in the Packaging & Containers industry. However, its 3-year average EBITDA growth is 3.1%, ranking worse than 58.09% of 346 companies in the Packaging & Containers industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (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 9.57, while its WACC came in at 9.24.
Conclusion
In conclusion, the stock of International Paper Co (IP, Financial) appears to be significantly undervalued. The company's financial condition and profitability are fair, but its growth ranks worse than 58.09% of 346 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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