On Friday, Wells Fargo has downgraded International Paper shares (NYSE:IP) from Equal Weight to Underweight, also reducing the price target to $40 from the previous $45. The firm has revised its earnings per share (EPS) estimates for the years 2025 and 2026 to $1.60 and $2.25, respectively, while cutting the EBITDA projections to $3.30 billion for 2025 and $3.67 billion for 2026. According to InvestingPro data, 8 analysts have recently revised their earnings estimates downward for the upcoming period, supporting Wells Fargo’s cautious stance.
The new price target of $40 is based on an 8.0 times multiple of the estimated 2026 EBITDA. Wells Fargo’s analyst pointed to several factors behind the downgrade. A key concern is the deterioration of fundamentals in both domestic and international containerboard markets. Additionally, there is a growing belief that International Paper will fall short of its 2025 financial guidance, which may divert investor attention from the company’s longer-term goals set for 2027. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading near its fair value, with current revenue at $19.9 billion and a market capitalization of $23.71 billion.
The analyst also noted that International Paper’s current valuation is high relative to its historical averages, with InvestingPro data showing a P/E ratio of 41.92 and elevated EBIT multiples. This elevated valuation appears to be out of sync with the weakening demand fundamentals. While the company has maintained dividend payments for an impressive 55 consecutive years, with a current yield of 4.12%, there is an expectation that International Paper may have to increase its leverage in 2025 to maintain its dividend payments.
International Paper, a global leader in packaging and paper products, has been facing challenges in the containerboard market, which is a significant segment of its business. The downgrade by Wells Fargo reflects concerns about the company’s ability to meet its financial targets amidst these market headwinds.
Investors and stakeholders in International Paper will be closely monitoring the company’s performance in the coming months, especially in light of the revised estimates and the analyst’s observations regarding market conditions and company valuation.
In other recent news, International Paper announced its first-quarter earnings for 2025, revealing a mixed performance. The company reported an earnings per share (EPS) of $0.23, which fell short of the forecasted $0.45. Additionally, its revenue of $5.9 billion did not meet the anticipated $6.48 billion. Despite these shortfalls, International Paper has been implementing significant cost reduction and transformation initiatives, including the acquisition of DS Smith. Analysts have noted ongoing challenges in market demand, particularly in North America and Europe. The company has projected a run-rate EBITDA of approximately $4 billion annually in its core Packaging (NYSE:PKG) business by the second half of the year. International Paper’s strategic focus includes targeting $1.1 billion in commercial improvement benefits by 2027. The company remains committed to its transformation strategy, emphasizing customer satisfaction and cost efficiency.
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