The paper sector is witnessing deteriorating fundamentals in containerboard, pulp and uncoated freesheet, according to KeyBanc Capital Markets.
Despite industry fundamentals being worse than in recent years, shares of International Paper Co (NYSE: IP ), Westrock Co (NYSE: WRK ) and Packaging Corp Of America (NYSE: PKG ) are trading in-line with or higher than their historical averages, according to the sell-side firm.
Although the shares of International Paper, WestRock and Packaging Corp of America have underperformed over the past year, there seems to be further downside to KeyBanc’s below-consensus estimates for 2020, Josephson said in a Sunday downgrade note. (See his track record here.)
Although KeyBanc’s estimates are below the consensus, they do not reflect any further price declines, the analyst said. Additional price declines will result in downside to the estimates, he said.
Paper industry prices seem to be on a downtrend following years of market strength, Josephson said.
“Given our belief that estimates likely have further room to fall, the fact that our 2020 estimates are based on margins no lower than historical averages, and the fact that multiples on our 2020 estimates are no lower than historical averages, we are of the view that the stocks will do no better than perform in line with the sector over the next 9-12 months, and in fact are more likely to underperform."
International Paper shares were down 1.92% at the time of publication Monday, while Westrock shares were down 3.68% and Packaging Corp. shares were down 2.75%.
Benzinga's Top Upgrades, Downgrades For July 11, 2019
30 Stocks Moving In Monday's Pre-Market Session
Latest Ratings for IP
|Jul 2019||Downgrades||Sector Weight||Underweight|
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