International Paper Company (NYSE:IP) is finding its footing, according to RBC Capital analysts, who upgraded the stock to Outperform from Sector Perform and lowered the firm's price target on the stock to $39 from $40 in a note to clients Friday.
The firm believes Industrial Packaging shipments have "likely bottomed" and will pick up from here.
"While destocking trends through the supply chain remain difficult to call from our perspective, IP management believes that destocking in the retail channel has been resolved, and will run its course through the rest of the supply chain in Q2," the analysts wrote.
In addition, they noted that encouraging management commentary on the progression in demand from March into April — which suggested shipments could be up 5-6% sequentially — and recent industry reports from RISI, lead them to believe volumes will "likely improve through the year and in H2 in particular, barring a deterioration in economic conditions."
The IP "valuation looks compelling," said the analysts. "With the share price near its lowest levels of the last several years, and an EV/EBITDA trading valuation below the long-term average despite EBITDA estimates being near what we view as a cyclical low, we think the current valuation reflects a significant degree of pessimism about the pace of shipment and margin recovery and think the set-up for the share price is likely asymmetric."