International Paper: Transformation Becomes More Apparent, Again A Buy (Rating Upgrade)

Publication Date: July 10, 2025

We are reiterating our positive outlook on International Paper (NYSE: IP), upgrading our rating to 'Buy' as the company's strategic transformation gains significant momentum and its underlying fundamentals show clear signs of improvement. The recent series of calculated divestments and strategic restructuring actions are not merely incremental changes but rather foundational shifts that are beginning to yield tangible benefits, positioning IP for renewed upside.

Strategic Execution Driving Renewed Optimism

International Paper's management has been diligently executing a multi-year strategy aimed at streamlining its portfolio, optimizing its cost structure, and focusing on its core packaging and pulp businesses. This strategic pivot is now becoming increasingly apparent in the company's financial performance and future outlook. The successful divestiture of non-core assets, such as the recent sale of its remaining stake in the Ilim joint venture, has significantly de-risked the balance sheet and provided capital for reinvestment in higher-growth, higher-margin segments. These actions underscore a disciplined approach to capital allocation and a clear vision for the company's future.

Despite a somewhat softer global macroeconomic outlook, International Paper has confidently reaffirmed its 2025 EBITDA guidance. This reaffirmation is a strong testament to the resilience of its core operations and the effectiveness of its internal efficiency initiatives. It suggests that the company is successfully mitigating external headwinds through internal strengths, a crucial indicator for long-term value creation.

Leadership and Operational Excellence

A key factor underpinning our renewed confidence is the leadership of the new CEO. With a proven track record of operational success and strategic execution in complex industrial environments, the new CEO brings a fresh perspective and a results-oriented approach. Their leadership is expected to accelerate the ongoing transformation, drive further operational efficiencies, and foster a culture of innovation within the organization. This leadership stability and clear strategic direction are vital for navigating the evolving dynamics of the global packaging and pulp markets.

Market Context and Implications

The global packaging market continues to benefit from secular trends such as e-commerce growth and increased demand for sustainable packaging solutions. International Paper, with its strong market position and focus on fiber-based packaging, is well-positioned to capitalize on these trends. While raw material costs and logistics can present challenges, IP's scale and integrated supply chain provide a competitive advantage. The company's commitment to sustainability also aligns with growing consumer and corporate preferences, potentially opening new market opportunities and strengthening its brand reputation.

Investment Insights for Investors

For investors, International Paper represents a compelling opportunity. The rating upgrade reflects our belief that the market has yet to fully price in the positive impact of the ongoing transformation and the strengthening fundamentals. The reaffirmed EBITDA guidance, coupled with strategic divestments, suggests improved profitability and a more focused business model. Investors should consider IP for its potential for capital appreciation driven by operational improvements, strategic clarity, and a favorable industry outlook. Furthermore, the company's dividend policy, while subject to review, typically offers an attractive yield, providing both growth potential and income generation.

We anticipate that as the benefits of these strategic initiatives become more pronounced in future earnings reports, investor confidence will continue to build, leading to a re-rating of the stock. The current valuation appears attractive given the company's trajectory and the improving risk-reward profile.