As the industrial paper sector evolves to meet shifting consumer demands, it continues to adopt innovative technology to bolster sustainability and efficiency. Given this backdrop, I think top-rated industrial paper stocks International Paper Company (IP), Clearwater Paper Corporation (CLW), and Dai Nippon Printing Co. (DNPLY) are wise portfolio additions.
The paper industry is on the precipice of a significant shift due to heightened digitization and variations in the availability of raw materials, which could present notable challenges. Despite the rapid progression toward a digital era, the paper continues to hold its unique significance worldwide, serving various purposes.
The industry's reliance on forestry and the labor market significantly contributes to socio-economic growth and environmental sustainability. As per Statista, the global pulp and paper market is expected to reach roughly $373 billion by 2029, further enhancing its pivotal role in the economic landscape.
Every year, over 400 million metric tons of paper and cardboard are produced globally, reinforcing its importance in numerous sectors. Paper packaging stands out for its versatility and cost-effectiveness when protecting, preserving, and transporting various goods.
The demand for packaging paper and board has seen considerable growth recently, thanks to the boom in online shopping. The global demand for containerboard is anticipated to soar by 30% by 2032, pushing it to an astounding 226 million tons.
There is a mounting call for recycled paper driven by rising environmental awareness and a collective push to reduce virgin pulp usage. Innovations in recycling technologies promote both efficiency and cost-effectiveness. The increasing consumer preference for eco-friendly products drives the demand for recycled paper. The global paper recycling market will likely expand at a 4.1% CAGR by 2029.
With these favorable trends in mind, let's delve into the fundamentals of the three Industrial - Paper stock picks, beginning with the third choice.
Stock #3: International Paper Company (IP)
IP produces renewable fiber-based packaging and pulp products in North America, Latin America, Europe, and North Africa. It operates through Industrial Packaging and Global Cellulose Fibers segments.
On July 11, IP declared a quarterly dividend of $0.4625 per share for the quarter that ended September 30, 2023, inclusive, on the common stock, par value $1 of the company, payable to the holders on September 15, 2023. It pays an annual dividend of $1.85, which translates to a yield of 5.35% on the prevailing price level. It has a four-year average dividend yield of 4.69%.
The company also declared a quarterly dividend of $1 per share for the same quarter, including the cumulative $4 preferred stock of the company, payable to the holders on September 15, 2023.
The company’s forward EV/Sales of 0.91x is 40.2% lower than the industry average of 1.52x. Also, its forward Price/Sales multiple of 0.62 is 44.2% lower than the industry average of 1.11.
IP’s trailing-12-month cash from operations of $2.07 billion is 472.2% higher than the industry average of $361.60 million. Also, its trailing-12-month ROCE, ROTC, and ROTA of 16.64%, 6.63%, and 4.39% are 96.3%, 18.4%, and 9.8% higher than the industry averages of 8.48%, 5.60%, and 4%, respectively.
During the fiscal second quarter that ended June 30, 2023, IP’s net sales stood at $4.68 billion. The company’s adjusted operating earnings reached $204 million, while adjusted operating earnings per share stood at $0.59. Its net earnings came at $235 million. Moreover, its free cash flow rose 27.9% year-over-year to $261 million.
IP’s revenue and EPS are expected to be $4.82 billion and $0.59, respectively, in the fiscal third quarter ending September 2023. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock gained 2.4% intraday to close its last trading session at $34.61. Over the past three months, it gained 8.8%.
IP’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value and Quality. Among the B-rated Industrial - Paper industry, it is ranked #4 out of 10 stocks.
To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for IP, click here.
Stock #2: Clearwater Paper Corporation (CLW)
CLW is a manufacturer and supplier of bleached paperboard and consumer and parent roll tissue operating through two segments: Pulp and Paperboard and Consumer Products.
CLW’s forward EV/Sales of 0.54x is 64.7% lower than the industry average of 1.52x. Also, its forward EV/EBITDA multiple of 3.81 is 52.1% lower than the industry average of 7.95.
CLW’s trailing-12-month ROCE and ROTC of 11.77% and 7.28% are 38.8% and 30.1% higher than the industry averages of 8.48% and 5.60%, respectively. Likewise, its trailing-12-month asset turnover ratio of 1.24x is 71.6% higher than the industry average of 0.72x.
For the fiscal second quarter that ended June 30, 2023, CLW’s net sales stood at $524.60 million, while its income from operations grew 50.2% year-over-year to $47.30 million.
During the same quarter, the company’s adjusted net income and adjusted income per share increased 56.6% and 56.8% from the year-ago quarter to $29.6 million and $1.74, respectively. In addition, its adjusted EBITDA stood at $71.50 million, up 13.5% year-over-year.
Street expects CLW’s EPS to increase 14.8% year-over-year in the fiscal third quarter (ending September 2023) to $2.10. Its revenue is expected to come at $525 million. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The company expects persistent strength in its tissue business in the coming quarters, with projected strong demand and lower input costs driving improved margins.
It also anticipates its paperboard volumes to improve in the second half of the year compared to the first half. It would also continue to focus on its cash flow generation through strong operating performance and managing inventories by matching supply with demand.
CLW’s shares have gained 2% intraday to close the last trading session at $35.45. Over the past three months, it gained 14.9%.
CLW’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
CLW has a B grade for Growth, Value, and Sentiment. Within the same industry, CLW is ranked #2.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Quality. Get all ratings of CLW here.
Stock #1: Dai Nippon Printing Co., Ltd. (DNPLY)
Headquartered in Tokyo, Japan, DNPLY is engaged in the printing and soft drink business. The company operates in four business segments: Information Communication segment; Life and Industry segment; Electronics segment; and Soft Drink segment.
On September 1, the company returned ¥8.90 billion ($60.51 million) to shareholders through share repurchases. Moreover, the DNPLY has been paying dividends to its shareholders for 14 consecutive years. It pays a $0.22 per share dividend annually, translating to a 1.62% yield on the current share price. Its four-year dividend yield is 2.44%.
On July 6, the company announced its entrance into the development and manufacturing of Encoder Disks (ED) employed internally in electronic components that detect the position, movement direction, and rotation angle of industrial robots. This should bode well for the company.
DNPLY’s forward EV/Sales of 0.72x is 57.8% lower than the industry average of 1.71x. Also, its forward Price/Sales multiple of 0.72 is 46.6% lower than the industry average of 1.35.
DNPLY’s trailing-12-month net income margin of 9.25% is 49.3% higher than the industry average of 6.19%. Its trailing-12-month ROTA of 6.91% is 36.9% higher than the industry average of 5.05%.
In the fiscal first quarter that ended June 30, 2023, DNPLY’s net sales stood at ¥345.10 billion ($2.34 billion), up 3.2% year-over-year, while operating income came at ¥13.28 billion ($90.38 million).
Net income attributable to DNPLY’s shareholders increased 268.9% from the year-ago quarter to ¥58.06 billion ($395.07 million), while net income per share grew 284.4% year-over-year to ¥225.11.
Analysts expect DNPLY’s revenue for the fiscal second quarter ending September 2023 to be $2.36 billion, whereas, for the fiscal year ending March 2023, it is expected to increase 41.2% year-over-year to $9.66 billion.
DNPLY’s shares have gained 35.6% year-to-date to close the last trading session at $13.65. Over the past year, it gained 30%.
DNPLY’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Stability. It is ranked first within the same industry.
Click here for DNPLY’s additional POWR Ratings for Momentum, Sentiment, and Quality.
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IP shares were trading at $34.69 per share on Friday afternoon, up $0.08 (+0.23%). Year-to-date, IP has gained 4.24%, versus a 17.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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