Shares of paper products makers rocketed up Wednesday after International Paper Co. pushed through a containerboard price hike that _ if it sticks _ could transform the once-moribund sector.
Citi Investment Research analyst Chip Dillon said in a client note that International Paper is raising containerboard prices, effective Oct. 1.
If that price hike sticks throughout 2009, earnings of at least one major containerboard company may triple: Smurfit-Stone Container Corp. could earn $1.50 per share compared with Dillon's current estimate of 45 cents mper share, the analyst said.
"This means Smurfit-Stone Container (shares are) are only a bit more than three times earnings per share," Dillon wrote.
If the price hike lasts through next year, International Paper, which owns 32 percent of the U.S. containerboard market, will earn around $3.80 per share in 2009, compared with his current per-share estimate of $2.70.
Analysts polled by Thomson Reuters expect, on average, International Paper to earn $2.44 per share, and Smurfit-Stone to earn 27 cents per share, in 2009.
Further, Dillon noted U.S. producer inventories of containerboard at the end of July were at their lowest level in tons since 1980. Also, Hurricane Gustav appears to have cut at least 30,000 tons of production.
The analyst rates both companies "Buy."
In morning trading, International Paper gained $1.34, or 5 percent, to $28.29; Smurfit-Stone surged $1.23, or 24 percent, to $6.35; Packaging Corp. of America added $1.07, or 4.2 percent, to $26.70; and Temple-Inland Inc. leaped $1.37, or 8.2 percent, to $18.03.
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