Paper and packaging products maker Boise (NYSE: BZ ) plans to repurchase $75 million of its common stock in an attempt to return value to its shareholders. Let's dig a little deeper.
A brief background
The upcoming $75 million buyback follows its previous $75 million share repurchase program that it has just completed. During the last authorization, Boise bought back 108 million shares at $5.68 apiece. The stock's current price is $5.94.
The new buyback allows Boise to purchase its shares either through the open market or through structured share repurchases. For a company with a market cap of $754 million, $75 million is a sizable amount. Let's see how Boise is placed financially and then how the market values its stock.
Money in the bank
Over the past 12 months, Boise had free cash flow of $125 million, which is down from the $294 million it had a year ago. It also slightly reduced its total debt to $763.1 million. With an interest coverage ratio of 4.4 times, Boise should have no real problems meeting its short-term obligations and buying the stock.
Although Boise should have no qualms financially funding the buyback, does the buyback make good sense?
What's its value?
Let's take a look at how the market has valued Boise compared to its industry peers.
|
Company
|
Trailing P/E
|
Forward P/E
|
TEV/EBITDA
|
| Boise |
6.3 |
7.1 |
3.3 |
| Domtar (NYSE: UFS ) |
4.6 |
8.3 |
2.7 |
| Neenah Paper (NYSE: NP ) |
9.6 |
7.8 |
4.9 |
| International Paper (NYSE: IP ) |
9.1 |
8.1 |
4.7 |
| MeadWestvaco (NYSE: MWV ) |
24.6 |
11.5 |
5.5 |
Source: Capital IQ (a division of Standard & Poor's) and Yahoo! Finance.
The trailing P/E suggests that Boise might be relatively undervalued compared to its peers despite overall valuations being low. The paper and packaging industry has been in a slow growth period for a while now, thus resulting in low valuations all around. But the recently announced merger between International Paper and Temple-Inland (NYSE: TIN ) is certainly something to take note of. International Paper's hostile bid to take over Temple made sense, because combining forces in a stagnant industry would help increase supply and also improve efficiency. Consolidation should make the industry more competitive and maybe make peers reinvent themselves.
Boise has been working on improving its product mix to take advantage of those markets with higher demand levels, such as the markets for corrugated packaging products and packaging demand-driven papers. Last year, sales in these segments grew by 13% and 18%, respectively. To help reduce input costs, Boise is working on using lower-cost substitutes for chemicals and also reducing the use of fibers and energy. These efforts should help improve Boise's margins.
The Foolish bottom line
Boise's low value looks attractive, and the buyback will help push up the earnings per share. Boise is worth taking a closer look at. To do so, click here to add Boise to your stock watchlist.
RSS Headlines
Fool UK