International Paper Company (NYSE: IP) joins the bandwagon of U.S. companies that are considering alternatives or have already announced exits from their Russian operations. The market sentiments are jittery on the Ukraine-Russia war and about business prospects in Russia in the event of heavy sanctions imposed on the invader by the European Union, the U.S., and other countries.
Shares of International Paper gained 0.9% on Friday, closing the trading session at $42.43. However, a slight downward movement was recorded in the company’s shares in the extended trading session.
The $16-billion company engages in manufacturing and supplying paper and packaging products, including cellulose fibers, corrugated packaging products, containerboard, and recycled products. The company, with headquarters in Memphis, TN, has manufacturing operations in North America, North Africa, Europe, and Latin America.
Inside the Headlines
As noted, International Paper is pondering over strategic alternatives for its Russian exposure, through a 50% stake in Ilim Group. It is open to a sale transaction for Ilim Group’s business while bankruptcy proceedings, liquidation, and suspension are not on the company’s list.
Based in Russia, Ilim Group is a leading pulp and paper company. It manufactures and provides pulp, corrugated packaging, wood chemicals, round wood, and other products. It operates two corrugated box plants and three pulp and paper mills. Its partnership with International Paper dates back to 2007. Remarkably, the company recorded a 9% year-over-year increase in its corrugated box plant outputs in 2021.
A possible divestment of the Ilim Group’s interest will likely leave impacts on International Paper’s financials. In 2021, Ilim Group’s revenues were $2,692 million, and its adjusted operating earnings before interest, tax, depreciation and amortization (EBITDA) stood at $1,107 million. For International Paper, its equity earnings from Ilim Group were $311 million and the dividend received was $154 million.
Along with its results for the fourth quarter of 2021, International Paper had communicated that it expects equity earnings of $80 million from the Ilim Group in the first quarter of 2022.
Wall Street’s Take
Recently, Mark Wilde, an analyst at BMO Capital, reiterated a Buy rating on International Paper and the price target of $60 (41.41% upside potential).
Another analyst at Truist, Michael Roxland, maintained a Hold rating on International Paper and lowered the price target to $54 (27.27% upside potential) from $49.
Overall, the stock has a Hold rating based on 3 Buys, 6 Holds, and 1 Sell. The average International Paper price target of $51.50 suggests 21.38% upside potential from current levels. Over the past year, shares of International Paper have lost 13.1%.
Risk Analysis
According to the TipRanks Risk Factors tool, International Paper stock is at risk mainly from four factors: Finance & Corporate, Production, Legal & Regulatory, and Macro & Political. While the Finance & Corporate and Production categories contribute five risks each to the total 21 risks identified for the stock, both Legal & Regulatory, and Macro & Political categories add four risks each.
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