Industry Reports

Deutsche Bank Reports Summaries

080207 Deutsche Bank Report - IP's Q4 in 100 Words

Deutsche Bank - Equity Research

International Paper {Ticker: IP, Closing Price: USD 31.72, Target Price: USD 40.00, Recommendation: Buy}.

* Still Buying The Paper, But Reducing Price Target

We are adjusting our price target to $40 from $45 to reflect increased economic risk. We maintain our Buy rating on the stock as IP gains pricing traction and shows continuing progress in replacing shrinking timber sales EBIT. Additionally, both the uncoated free sheet and the containerboard markets are in good balance.

* Good Quarter

Underlying $0.69/share. DB @ $0.68, FC @ $0.65. T'land EBIT was $20-25MM higher than expected. Maintenance and operating issues hurt NA UFS results (-$31MM q/q). Unallocated costs also up. A weak US$ helping IP from several angles - including competitively & FX translation.

* Segments results mixed

Printing Papers segment = Disappointing, with North America as weak spot. Mix & tax benefits ($6MM) in Brazil, (2) Industrial Packaging = Nice q/q EBIT gain +$29MM, helped by lower Pensacola costs, (3) Consumer Pkg = Disappointing. Ptg to maint. & input costs, (4) Xpedx. OK qtr., (5) Forest Products - land sales = Above guidance.

FY07 EBIT = $471MM, FY08E = low-end of $185-275MM.

* Other Issues

(1) '08 Capex =$1.1B, lower in '09, (2) Continue hinting about dividend, but no decision, (3) Repurchased $100MM in Q4, $350MM remaining.

* Valuation & Risks

Our $40 price target is based on 7.0X our '08 EV/EBITDA estimate, which is in line with the current mean and median trading multiples for IP's peer group. The greatest risk is the macroeconomic risk, both domestically and on a global basis. Additional risks include currency, energy and fiber costs.