IP: Earnings Will Strengthen As $1.5B Portfolio Sale And Closures Progress

Analysts nudged our fair value estimate for International Paper higher by about $1 to approximately $48 as they balance emerging evidence of profit and margin improvement from strategic portfolio actions against lingering skepticism over the pace and durability of demand and pricing recovery.

Analyst Commentary

Bullish analysts view International Paper as moving closer to a strategic inflection point, with portfolio simplification and cost actions beginning to support a more durable improvement in earnings power. Bearish analysts, however, continue to question whether current valuation fully reflects lingering demand and pricing risks, particularly in containerboard.

Bullish Takeaways

• The planned $1.5 billion divestiture of the underperforming Global Cellulose Fiber operations is seen as a concrete step toward sharpening the portfolio focus and improving consolidated return on capital.
• Supportive analysts argue that the current share price no longer embeds excessive optimism around the new leadership transition. They view the setup as a more attractive risk reward as execution on strategic initiatives progresses.
• Despite modestly lower or unchanged price targets, the constructive camp believes that margin expansion from portfolio pruning and operational efficiencies can underpin midcycle earnings above what is implied in more cautious forecasts.
• Some positive views hinge on the belief that the company is nearing a pivot point in its strategic rethink, where incremental actions could translate more directly into visible profit and cash flow improvement.

Bearish Takeaways

• Bearish analysts contend that the shares still discount a faster and smoother recovery in demand and pricing than underlying fundamentals justify. They see room for valuation downside if macro or industry conditions disappoint.
• Containerboard demand remains described as sluggish, with capacity reductions mainly preventing further price erosion rather than signaling a robust upcycle. This tempers expectations for near term revenue growth.
• More cautious views highlight that the investment case is increasingly dependent on execution of longer dated strategic actions, including initiatives in Europe, which are seen as more complex and harder to deliver on schedule.
• Even where price targets are nudged higher, bearish analysts stress that the upside is capped by near term earnings pressure and the possibility that the next meaningful price increase in the sector may not materialize until 2026.

What's in the News

• Announced the closure of packaging facilities in Compton, California and Louisville, Kentucky by January 2026, affecting 218 employees, as part of a footprint streamlining effort to support its sustainable packaging transformation (Key Developments).
• Revised 2025 earnings guidance, now expecting approximately $24 billion in net sales for the full year (Key Developments).
• Reported completion of a share repurchase program totaling 14,260,530 shares, or 4.02% of shares outstanding, for $537.01 million under the buyback authorized in October 2021 (Key Developments).
• Amended its Supply and Offtake Agreement with Sylvamo North America for the Riverdale Mill, extending supply through April 30, 2026, with a wind down in May and clarifying Sylvamo’s $1 purchase and staged removal of sheeting assets from the mill (Key Developments).

Valuation Changes

• Fair Value Estimate has risen slightly, moving from about $47.16 to approximately $48.07 per share, reflecting modestly improved long term earnings expectations.
• Discount Rate has fallen marginally, edging down from roughly 7.52 percent to about 7.50 percent, indicating a slightly lower implied risk profile in the valuation model.
• Revenue Growth has increased slightly, with the long term annual growth assumption moving from around 2.28 percent to about 2.34 percent.
• Net Profit Margin has risen modestly, with the long run margin assumption increasing from roughly 6.78 percent to about 7.08 percent, signaling a more constructive view on profitability.
• Future P/E has declined slightly, easing from about 17.70x to roughly 17.23x, suggesting a marginally more conservative multiple applied to forward earnings.