UPDATE: Macquarie Cautious on Containerboard Stocks, Cuts KapStone (KS) to Neutral (IP) (PKG) (RKT)

(Updated - June 22, 2015 10:47 AM EDT)

Macquarie downgraded KapStone Paper & Packaging (NYSE: KS) from Outperform to Neutral with a price target of $26.00 (from $31.00). Macquarie also lowered price targets on Neutral-rated International Paper (NYSE: IP) ($48 from $54), Packaging Corp. (NYSE: PKG) ($65 from $69), and RockTenn (NYSE: RKT) ($64 from $68). Changes follows a price cut on West Coast containerboard.

Analyst Al Kabili said it’s hard to get excited about any containerboard stock given risk that margins and possibly earnings may have already peaked this cycle.

"On Friday evening, PPW published a $20/ton price cut on medium prices and more importantly a $10/ton price cut on linerboard US West price indices due to competitive conditions in California. While we had specifically not been expecting the published price cut (particularly for linerboard), we had noted the containerboard market has been looser than it has been in years and we were concerned of mounting pressures, heightened competitive activity, and some areas of price weakness that we had been hearing about. Following the incrementally negative news, we are lowering our below-consensus estimates (and TPs) across our containerboard coverage universe. Moreover, we view risks to further estimate changes to the downside, and continue to maintain a generally cautious stance on the containerboard group," said Kabili.

The analyst added, "While the direct financial impact of the published West Coast price cut is not huge, we are concerned of further downside risk. We note the cut is an adjustment to reflect that West Coast containerboard is no longer commanding a premium to the Eastern US. The largest direct financial impact will be on open market containerboard sales in the Western US. Any impact on box prices on the West Coast is harder to formulaically quantify, particularly as even some of those contracts in the region that do directly reference the West Coast indices could have price corridors that would require a larger published change before automatically adjusting. However, we believe the published cut will still likely reverberate throughout the industry and create some knock-on effects."

For an analyst ratings summary and ratings history on KapStone Paper & Packaging click here. For more ratings news on KapStone Paper & Packaging click here.

Shares of KapStone Paper & Packaging closed at $26.90 yesterday.

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