International Paper Co. dropped to the lowest level since October as paper and packaging companies tumbled following a cut in containerboard prices.
Macquarie Group analysts on Monday lowered 2015-2017 earnings estimates for International Paper, KapStone Paper & Packaging Corp., Rock-Tenn Co. and Packaging Corp. of America. The firm also reduced its price targets for all four companies, citing declines in West Coast container board prices reported by PPI Pulp & Paper Week.
“It’s hard for us to get excited about any containerboard stock at present as we see risk that margins (and quite possibly earnings excluding M&A) may have already peaked this cycle,” Macquarie analysts led by Al Kabili wrote in a note to clients.
Kabili said he sees more downside risk amid the price cuts. The biggest financial impact will be on sales in the western U.S., but the effects of the price cut will “still likely reverberate throughout the industry and create some knock-on effects,” according to the note.
Macquarie downgraded KapStone to neutral from outperform due to the company’s high exposure in the western U.S.
The price cuts come amid intensifying competition for packaging-industry assets following a string of deals. In January, Rock-Tenn agreed to acquire MeadWestvaco Corporation for about $9.2 billion to create the world’s second-largest packaging company. Market leader International Paper said in April it was also looking at acquisitions.
International Paper fell 2.9 percent to $49.67 at 4 p.m. in New York. KapStone dropped 5.4 percent, the most in almost 11 months. Packaging Corp. and Rock-Tenn each fell at least 1.2 percent.
In a separate note, Jefferies Group called the price cut “somewhat surprising.” Though the earnings impact for International Paper, Packaging Corp. and Rock-Tenn will be modest, Jefferies expects sentiment to remain negative until inventory returns to a more normalized level.