Is International Paper a Hidden Commodity Gem?

The commodity sector is undergoing a seismic shift. While lithium miners and solar tech giants dominate headlines, one old-school name—International Paper (IP)—is quietly climbing the ranks of growth contenders. Let’s dissect if this packaging giant belongs in the "Top 15 Commodity Producers With the Highest Upside Potential" list—and whether investors should take notice.

The Upside Case: IP’s 12th-Rank Ambition

Wall Street analysts have placed IP at #12 in their 2025 ranking of commodity firms with the most upside. The key? A projected 25.75% stock upside—not bad for a company that’s been around since 1898. But how does a paper company compete in a world obsessed with lithium and solar?

First, valuation metrics scream value. IP’s $18.2 billion market cap ranks it third in its sector, behind mining giants BHP and Rio Tinto. Its P/E ratio of 16 sits below the sector average of 18, while its 3.2% dividend yield edges out peers like ArcelorMittal. More importantly, IP controls one-third of North America’s corrugated packaging market, a sector critical to e-commerce, manufacturing, and global trade.

The Financials: Growth Amid Grit

IP’s Q1 2025 results were a mixed bag. Revenue soared 28% to $5.9 billion, driven by the DS Smith acquisition (a $12.7 billion deal completed in January 2025). But net earnings turned negative ($0.24 per share) due to $271 million in restructuring charges from closing its Red River mill. Strip out those one-time costs, and adjusted earnings hit $0.23 per share, up from a loss in late 2024.

The real story is operational resilience. Packaging Solutions North America saw sales jump 14% thanks to 22% price hikes on containerboard—proof that IP can pass rising costs to customers. Meanwhile, the Global Cellulose Fibers segment turned profitable after years of losses, aided by lower pulp prices and mill efficiency.

The Playbook: Cost Cuts and Market Domination

IP’s “80/20” strategy—focusing on high-value customers and shedding low-margin business—is paying off. By closing unprofitable mills and integrating DS Smith’s European operations, IP aims to boost margins while capturing $500 million in cost savings by 2026.

The company is also doubling down on eucalyptus plantations in Brazil and digital supply chain tech, which could future-proof its packaging dominance. With 75% of sales in North America, IP is betting big on U.S. manufacturing rebound and e-commerce growth—a smart move as Amazon and Walmart vie for market share.

The Risks: Commodity Headwinds and Debt

No free lunch here. The World Bank warns of a 12% drop in commodity prices in 2025, which could crimp margins. IP’s debt load—$9.18 billion post-DS Smith—is a red flag, especially if interest rates stay elevated. And while the company’s free cash flow turned negative ($618 million in Q1) due to acquisition costs, management insists this is a temporary hurdle.

The Bottom Line: Buy the Dip, or Wait for Clarity?

International Paper is not a slam dunk, but its upside potential is undeniable. With a 3.2% dividend, a P/E discount to peers, and strategic moves to capitalize on e-commerce and cost discipline, IP offers a blend of income and growth.

The numbers back this up:
- 25.75% upside target implies a price jump to $65+ (from mid-$50s in early 2025).
- Its one-third market share in North American packaging gives it pricing power.
- The DS Smith merger adds scale in Europe, a region with rising demand for sustainable packaging.

But investors must weigh risks. If commodity prices crater or debt costs spike, IP’s stock could get crushed. My advice? Buy dips below $50 (a 20% pullback from current levels) and hold for the long game. The packaging sector is here to stay—and IP is positioning itself to lead.

Final Call: Hold for now. Wait for clearer signs of margin recovery and better commodity pricing before diving in. But keep this name on your radar—it’s a classic “value trap” waiting to spring into a growth story.

Disclosure: The analysis is based on publicly available data as of Q1 2025. Always do your own research before investing.