JPMorgan upgrades International Paper as linerboard pricing cycle gains momentum

Investing.com -- JPMorgan upgraded International Paper to "Overweight" from "Neutral," arguing that an improving U.S. linerboard pricing cycle and tightening supply-demand dynamics are likely to lift earnings across the corrugated packaging sector, with International Paper offering the most attractive risk-reward profile.

The brokerage raised its price target on International Paper to $61 from $51, while increasing its London-listed target to 4,600 pence from 3,200 pence. It maintained Overweight ratings on Smurfit WestRock and Packaging Corp. of America, lifting their price targets to $71 from $65 and $312 from $271, respectively.

The upgrade follows reports that Packaging Corp. of America plans to implement a $140-per-ton U.S. kraftliner price increase from Sept. 1. JPMorgan expects only $50 per ton to be realized in its base case but said even that would represent the strongest quarterly price-cost progression in a decade, with further upside possible if supply remains tight.

JPMorgan said the latest price increases are being driven by favorable supply-demand fundamentals rather than rising production costs. It argued linerboard prices remain below levels needed to justify investment in new capacity, estimating prices would need to exceed $1,200 per ton to generate acceptable returns on a new mill, versus current spot prices of about $1,045 per ton.

Assuming a $50-per-ton price increase, the brokerage raised its 2027 EBITDA forecasts by 5% for Smurfit WestRock, 11% for Packaging Corp. of America and 12% for International Paper. It said Packaging Corp. and International Paper remain the most leveraged to higher linerboard pricing, while International Paper stands to benefit the most from a valuation perspective given its currently depressed earnings base and higher financial leverage.

Despite the upgrade, JPMorgan said it continues to prefer Packaging Corp. of America and Smurfit WestRock due to their stronger execution, higher returns on invested capital and lower operational risk, while noting International Paper offers roughly 43% upside to its current share price under its revised assumptions.

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