International Paper Co (IP, Financial) has experienced a daily gain of 4.4%, yet over the last three months, it has seen a loss of 2.41%. With an Earnings Per Share (EPS) of $0.49, investors may wonder if the stock is fairly valued. This analysis will delve into the valuation of International Paper Co, offering insights into whether the current market price reflects the true value of the company's shares.
Understanding International Paper Co
International Paper Co (IP, Financial) is a leading manufacturer of packaging products and cellulose fibers, dominating roughly one third of the North American corrugated packaging market. While the company has a global presence with operations in Brazil, India, and China, more than three-fourths of its sales are generated from North America. Catering to a diverse range of end markets, including industrial, consumer products, and manufacturing, International Paper Co is a significant player in its industry. The current stock price of $35.32 is set against a backdrop of a Fair Value (GF Value) of $36.17, suggesting a close alignment with the estimated intrinsic value.
The GF Value Explained
The GF Value is a proprietary measure that represents the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and projected future business performance. When the stock price aligns closely with the GF Value, it is considered fairly valued, indicating that the stock is trading at a price that reflects its actual worth.
International Paper Co's stock is deemed fairly valued according to the GF Value, with the potential for the long-term return of its stock to mirror the rate of its business growth. This fair valuation suggests that the stock price is at a level that is justified by the company's financials and market position.
Financial Strength of International Paper Co
Assessing a company's financial strength is crucial to avoid the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into the financial resilience of a company. International Paper Co's cash-to-debt ratio stands at 0.18, which is lower than 70.63% of its peers in the Packaging & Containers industry. With a financial strength rating of 5 out of 10, International Paper Co's financial condition is considered fair.
Profitability and Growth Prospects
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. International Paper Co has maintained profitability for the past decade, with a recent annual revenue of $18.50 billion and an Earnings Per Share (EPS) of $0.49. However, its operating margin of 3.21% is below 69.71% of competitors in its industry. The company's profitability is rated 7 out of 10, signifying a fair level of profitability.
Growth is a critical determinant of a company's valuation. International Paper Co's 3-year average revenue growth rate surpasses 53.64% of companies in its industry, while its 3-year average EBITDA growth rate of 4.6% is better than 50.74% of its peers. This growth performance suggests that International Paper Co has the potential to create value for its shareholders.
Evaluating ROIC Against WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to the capital invested. International Paper Co's ROIC over the past year is 2.57, which is lower than its WACC of 8.81, indicating that the company may not be creating value for its shareholders at an optimal rate.
Final Thoughts on International Paper Co's Valuation
In summary, International Paper Co's stock appears to be fairly valued. The company's financial condition is fair, and its profitability is reasonable. Its growth is competitive within the Packaging & Containers industry. For those interested in a more detailed financial overview, International Paper Co's 30-Year Financials can be found here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
