International Paper Earnings: Turnaround in Early Innings but Signs of Progress Boost Stock

No-moat-rated International Paper reported solid third-quarter results that came with a surprise announcement as the company will now seek strategic alternatives for its global cellulose fibers business. Management also highlighted its initial progress in its 80/20 strategy, where the company has made progress simplifying its operations and removing excess capacity. While the new strategy is in the early stages, initial progress seems solid, but the full benefit and ultimate success of the 80/20 strategy won’t be known for some time. Consolidated net sales rose roughly 1.5% year over year, but International Paper reported a 5.1% operating margin, down from the 7.6% reported a year ago. This was largely driven by the industrial packaging segment, which saw lower volumes and a significant rise in operating costs in the quarter. We've increased our fair value estimate to $47 from $44 per share due to slightly higher midcycle margins in our forecast.