Ahead of the Bell: Paper products upgrades

A Credit Suisse analyst upgrade the paper and forest products industry Monday, saying stock prices for most companies are reasonable, and demand for most types of paper will reach a low point in the fall.

Mark Connelly raised his rating on the sector to "Overweight" from "Underweight." He upgraded Smurfit-Stone Container Corp. and Temple-Inland Inc. to "Outperform" from "Neutral" because investor expectations for containerboard companies have come down to more realistic levels.

Shares of Temple-Inland and Smurfit-Stone are both trading around all-time lows.

He thinks the companies will raise prices for the material, which will improve their profit margins. He said Smurfit-Stone should be able to manage its debt, and Temple-Inland's mills are in good shape.

Temple-Inland shares rose 70 cents, or 6.6 percent, to $11.30 in premarket trading, up from Thursday's closing price of $10.60. Connelly kept a price target of $14 per share.

The analyst expects shares of Smurfit to nearly double to $8 from Thursday's closing price of $4.04. His previous price target was $12 per share.

Connelly said prices for uncoated freesheet paper have held up fairly well considering weakened demand. He said Domtar Corp. is the best-positioned stock in that part of the sector, and maintained an "Outperform" rating.

He also holds an "Outperform" rating on shares of Verso Paper Corp., Sappi Ltd., Packaging Corp. of America, MeadWestvaco Corp., PH Glatfelter Co. and Albany International Corp.