International Paper Company IP is gaining from growth initiatives and ongoing investments to boost capacity and acquisitions.

IP is expected to see volume growth in its Industrial Packaging segment in the fourth quarter of 2024 and thereafter. This will be driven by stable demand in the e-commerce channel and strong momentum in the food and beverage sectors.

Let us delve deeper and analyze the factors that make the IP stock worth holding on to at present.

International Paper’s DS Smith Acquisition Deal

IP entered an agreement to acquire the entire issued share capital of DS Smith in April 2024. This marks a strategic move to strengthen its corrugated packaging business in Europe and prioritize sustainable packaging. 

The buyout is expected to be accretive to its earnings in the first year of closure and provide at least $514 million of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the closure. The acquisition is expected to close by the first quarter of 2025.

IP Witnesses Pickup in Demand Levels

International Paper noted a pickup in demand this year after softness through the major part of 2023 due to inventory destocking at customers’ end. The company is seeing stable demand in the e-commerce channel as packaging is critical in the supply chain to bring essential products to consumers. This trend is expected to continue.

In Food and Beverage, the fresh food business benefiting from consumer preference toward preparing meals at home rather than relying on processed food. Even though the Beverage segment has been under pressure, the company expects demand in this packaging-intensive segment to improve this year, backed by current trends.

Although volumes declined in the third quarter of 2024 due to seasonality, International Paper expects higher earnings sequentially for the Industrial Packaging segment in the fourth quarter of 2024, reflecting prior price index increases and lower costs. Volumes are expected to increase on seasonal trends.

International Paper’s Focus on Growth

IP has taken initiatives to drive growth. It has been streamlining and simplifying its organization to form a packaging-focused company. International Paper stated that it would optimize cost structure, make investments to strengthen its competitive and strategic assets, and reduce complexity in the business. 

The company has recently said that it has been exploring options for the Global Cellulose Fibers business. Around 75% of the benefits from its strategic actions are expected in 2025.

Near-Term Concerns for IP

The Global Cellulose Fibers volumes dipped in the third quarter of 2024 after returning to profitability in the second quarter of 2024. Higher fluff volume was offset by a reduction in commodity pulp. Operating costs were higher due to mill reliability incidents, employee benefits costs and the timing of spending.

Earnings in Global Cellulose Fibers will decline sequentially in the fourth quarter of 2024 due to the prior price index declines, higher planned maintenance outages and accelerated depreciation of around $220 million for the Georgetown mill closure.

International Paper Stock’s Price Performance

The company’s shares have risen 57.1% in the past year compared with the industry’s 46.9% growth.

Image Source: Zacks Investment Research

IP’s Zacks Rank & Stocks to Consider

International Paper currently carries a Zacks Rank #3 (Hold). 

Some better-ranked stocks from the basic materials space are Carpenter Technology Corporation CRS, CF Industries Inc. CF and New Gold Inc. NGD. CRS sports a Zacks Rank #1 (Strong Buy) at present, and CF and NGD carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Carpenter Technology has an average trailing four-quarter earnings surprise of 14.1%. The Zacks Consensus Estimate for CRS’s fiscal 2025 earnings is pegged at $6.61 per share. Its shares skyrocketed 162.7% in the last year.

CF Industries has an average trailing four-quarter earnings surprise of 10.3%. The Zacks Consensus Estimate for CF’s 2024 earnings is pegged at $6.32 per share. CF’s shares gained 20.6% in the last year.

New Gold has an average trailing four-quarter earnings surprise of 37.5%. The Zacks Consensus Estimate for NGD’s 2024 earnings is pegged at 18 cents per share. Its shares gained 64.2% in the last year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

International Paper Company (IP) : Free Stock Analysis Report

CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report

Carpenter Technology Corporation (CRS) : Free Stock Analysis Report

New Gold Inc. (NGD) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research