Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of International Paper Dropped 24% in the First Half of 2020

By Scott Levine - Jul 5, 2020 at 3:43PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some stocks have proved to be immune from COVID-19. This is not one of them.

What happened

Climbing 14% higher in 2019, shares of International Paper (IP -0.49%) failed to keep pace with the S&P 500 which soared 29%. In 2020, investors are finding a similar dynamic. While the S&P 500 sank 4% lower through the first six months of the year, International Paper has fared much worse, falling 24%.

Besides a number of pessimistic takes on the stock from Wall Street, a weak Q1 earnings report and questions surrounding the remainder of 2020 left investors unmotivated to pick up shares.

A man looks at a red arrow crashing though the floor.

Image source: Getty Images.

So what

Throughout the second quarter of 2020, several analysts shone an unflattering spotlight on International Paper. In early April, for example, Adam Josephson lowered KeyBanc's price target on the stock to $29 from $38 and maintained an underweight rating, according to Then, in late May, an analyst at Deutsche Bank, Debbie Jones, shared her bearish opinion, lowering her price target to $40 from $46 while keeping a hold rating on the stock. A few weeks later, Morgan Stanley joined in the fray, initiating coverage on the stock with an underweight rating and assigning it a $29 price target.

A disappointing Q1 earnings report provided investors with additional causes for concern. In part because of reduced demand for food-service companies, lower discretionary spending among consumers, and what the company characterized as a drop-off in its printing papers business, reflecting an "unprecedented decline due to impact of work-from-home and decline in print advertising," the company reported sales of $5.4 billion in the quarter, a 3.6% year-over-year decline. However, the impact of the global pandemic on the company's bottom line was significantly worse. Whereas International Paper reported net earnings of $424 million in Q1 2019, the company reported a net loss of $141 million in the first quarter of 2020. But it wasn't only the income statement that was disconcerting for investors. International Paper reported free cash flow of $363 million in Q1, an 18% decline from the $440 million it generated in Q1 2019. 

Now what

Since analysts often have short-term horizons when evaluating stocks, it's usually best for investors on Main Street to take their opinions with a grain of salt. In the case of International Paper, however, the analysts' skepticism seems well warranted. Whereas some businesses have thrived during the first half of 2019, in spite of the challenges wrought by the global pandemic, International Paper has suffered. And the second half of 2020 may bring more of the same. Management contends in its Q1 earnings report that it is "unable to fully quantify the impact that the COVID-19 pandemic will have on [its] financial results during 2020, but developments related to COVID-19 are significantly adversely affecting [its] business, and could have a material adverse effect on [its] financial condition."

Investors, especially those focused on dividends, will want to monitor the coming quarters closely since ongoing challenges could compromise the company's ability to sustain its high-yielding distribution.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

International Paper Company Stock Quote
International Paper Company
$44.29 (-0.49%) $0.22
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,291.52 (0.27%) $11.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.