IP - International Paper: The Market Has Overpriced It As A Standalone Business

2024-06-28 15:39:04 ET

Summary

• IP is not a high-growth company, with declining revenue and profits over the past decade. It operates in a mature sector, making it difficult to achieve double-digit growth organically.
• There were also no signs of improving productivity. However, IP is financially sound and is a cash cow.
• A valuation of IP as a standalone business (ignoring the DS Smith combination) shows that it is worth USD 22 per share.

Investment Thesis

Treating International Paper Compan y ( IP ) as a standalone business, I would not consider it a wonderful business in the Buffett sense. Over the past decade, it had declining top and bottom lines with corresponding declining returns.

While it is a cash cow, it operates in a mature sector where it is difficult to deliver double-digit growth via organic growth. I guess that is why there is an interest in M&A in this sector....

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