Senator Investment Group Makes Big Investment In International Paper

Other providers of paper and packaging products include Domtar Corp (NYSE:UFS), MeadWestvaco Corp. (NYSE:MWV), Clearwater Paper Corp (NYSE:CLW), and KapStone Paper and Packaging Corp. (NYSE:KS). Each of these companies also carries a large discrepancy between their trailing and forward earnings multiples, as the sell-side seems to be expecting the industry as a whole to do better as well as the possibility of ending restructuring charges. While all four of these stocks carry trailing P/Es in the 20 to 30 range, meaning that International Paper is not particularly overpriced compare to its peers, in terms of 2014 numbers the multiples are generally between 10 and 13. The exception is MeadWestvaco, a packaging company which is valued at 18 times consensus earnings or that year. This means that International Paper- by far the largest of this peer group- is also the cheapest assuming that analyst expectations are correct.

Of course we’d be wary of taking Street projections at face value, and in absolute terms International Paper would be too dependent on future improvement in order to be a good buy in our opinion. Yet if an investor is interested in paper and packaging we look at the company compared to its peers and it seems to have at least as good prospects, a relatively low valuation in terms of forward estimates, and yet a considerably higher market capitalization. As such those looking or names in the industry should probably start their search by looking more closely into how International Paper’s charges might unfold over time.

Disclosure: I own no shares of any stocks mentioned in this article.