Shares of International Paper (IP -1.84%) fell more than 11% last month, according to data provided by S&P Global Market Intelligence. The paper-based packaging leader reported full-year 2019 operating results on Jan. 30. While adjusted earnings per share (EPS) beat Wall Street estimates, revenue fell just short of the consensus among analysts.
In reality, investors tend to give a little too much value to Wall Street estimates. What really matters is the long-term trajectory of a business. In this instance, International Paper is clearly on a solid path, but persistent headwinds in the pulp and paper industry (or perhaps more accurately, the overreaction to the headwinds) continue to weigh on the dividend stock.
International Paper reported full-year 2019 revenue of $5.5 billion and adjusted EPS of $1.09. Analysts were expecting revenue of $5.576 billion and adjusted EPS of $1.02. The difference is relatively meaningless, which likely explains why shares rebounded in early February. The stock has now posted a year-to-date loss of only 5.4%.
More importantly, the business appears to be in solid shape. It reported a full-year 2019 margin on earnings before income taxes and equity earnings of 7.3%, compared with 6.4% in the year-ago period. The pulp and paper leader generated $3.6 billion in operating cash flow last year, an increase of 12% year over year. The business also generated a record $2.3 billion in free cash flow for the year and paid down $973 million in debt.
Despite the progress delivered in 2019, International Paper can never seem to outrun the headwinds facing the global pulp and paper industry. Demand for paper-based packaging solutions remains strong, as do selling prices, but analysts remain bearish on the market nonetheless.
While that makes the stock's five-year loss of 20% all the more frustrating for investors, the business is a solid cash cow trading at a reasonable price. If and when the bearish sentiment subsides, then shares should finally be able to put together a winning streak.