IP - Containerboard check: Wells Fargo downgrades International Paper calls Graphic Packaging its top pick

The containerboard and packaging sector will see earnings pour in next week.

Wells Fargo prepped for the rush of reports and guidance updates with a downgrade on International Paper Company ( NYSE: IP ) to an Equal-weight rating from Overweight due primarily to slowing demand and incremental nonintegrated supply coming online.

Analyst Gabe Hajde and team said their bias has shifted towards the downside for pricing, even with a potential pickup in exports on account of energy instability in Europe. The stock is seen hitting a challenging period given the setup for lower containerboard pricing, a lack of confidence in operational execution, and an overhang from the Ilim joint venture. Wells Fargo dropped its price target on IP to to $47 from $58 to reflect a 6.0X multiple off the 2022 EBITDA estimate.

Meanwhile, Graphic Packaging Holding Company ( GPK ) is the favored sector pick for Wells Fargo into the Q2 earnings season. The firm said it remains constructive on Overweight-rated GPK given consistent execution and real pricing power across its three primary paperboard grades. The company is also noted to be harvesting returns associated with large-scale investments. "Given the non-durable nature of GPK's primary end markets, which should render volumes resilient in an economic slowing, we see the company as favorably positioned heading into H2," previewed WF.

Shares of IP fell 1.31% premarket to $41.37. GPK was down 0.44% in the early session.

See consensus estimates on IP and GPK.

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