This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Packaging Stocks Slide on Pricing Setback

Stocks in this article: IPTINPKGBZRKTSSCC

Updated with closing prices.

NEW YORK ( TheStreet) -- In this case, it looks like the third time wasn't the charm.

Shares of the paper and packaging companies were weak on Monday following news that a containerboard price increase instituted in August, the industry's third since the start of the year, hasn't stuck.

According to Deutsche Bank, industry periodical Pulp & Paper Week, revised published prices for August lower late on Friday with the editors citing "price concessions by small producers and an inability to raise corrugated box and sheet prices." The firm said the "abrupt shift" in the published price to $640/ton from $680/ton was a surprise, and quickly slashed its earnings estimates for the group.

"If one assumes that 2011 average prices will now be $40/ton lower, $1.4B billion in prospective 2011 EBITDA earnings before interest, taxes, depreciation and amortization has vaporized," Deutsche Bank said. "Use a 6-7X multiple on that EBITDA, the hypothetical valuation implications are impressive."

The group was hit hard by the news with International Paper (IP) closing down 6.4% at $21.97 with volume of 20.3 million running at nearly three times the issue's daily average churn of around 7 million; Temple-Inland (TIN) off 5.9% to finish at $18.90; Packaging Corp. of America (PKG) losing 4.8% to $23.19; Boise Inc. (BZ) falling 5% to $6.92; Rock-Tenn Co. (RKT), tumbling 4.7% to $50.00; and Smurfit-Stone Container Co. (SSCC) sliding 2.8% to $19.78.

Deutsche Bank made slight revisions to its earnings estimates for the rest of fiscal 2010, saving the bigger cuts for fiscal 2011 and adding that it would review its price targets for the stocks over the next few days. To give an example of the depth of the cuts for fiscal 2011, the firm dropped its EPS view for International Paper by 18% to $2.55 from its prior estimate of $3.10.

The current consensus estimate according to Thomson Reuters is for a profit of $2.66 a share, so the firm was already on the high side of expectations.

"DB Deutsche Bank had estimated that c'board containerboard price would peak at $690/ton in Sept/Oct. and avg. $665/ton in 2011," the firm said. "Given that the third price hike now appears to be dead, we are cutting our estimates to $640/ton for the remainder of FY'10 and $620/ton for FY'11."

The firm still has buy ratings on the companies it covers in the group, and said that, even without the the third hike, the containerboard companies were trading at low multiples relative to historical averages.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs