International Paper is “a real turnaround story,” Cramer said Friday, “and there has been a gigantic move off the bottom.”
The company has rebounded nicely since tight credit markets forced it to cut its dividend, just in time for the economy’s turn. As Cramer recently pointed out, the increased usage of corrugated boxes means more products are being shipped, and that’s a sign that businesses are revving up again. Well, those boxes are IP’s bread and butter, putting it in the sweet spot for the recovery.
IP controls about a third of the North American containerboard box market, a market that’s finally starting to see some price stabilization. If prices start to rise, Cramer said, “we could see an earnings explosion here.” A $40 per-ton bump yields about 68 cents to International Paper’s annual earnings, which is significant when you consider the Street expects the company to generate 93 cents a share in 2010.
One of the biggest improvements that IP has made is in its margins. By cutting costs, margins have jumped to 11% from 6% two quarters ago. The move is noteworthy even though Packaging Corp. of America and Temple-Inland have 15% margins. Plus, buying Weyerhaeuser’s packaging business will help IP save another $500 million.
The balance sheet’s looking good, too. International Paper reduced its debt by 41.9 billion, leaving it with only $700 million of loans coming due through 2012. That puts the business, Cramer said, “in a much better place.”
But don’t take it from him. Find out what IP Chairman and CEO John Faraci had to say about his business. Watch the video for Cramer’s full interview.
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