This Day On The Street
Continue to site
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

Packaging Stocks Slide on Pricing Setback

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 - Get Report) 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 - Get Report) 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BZ $0.00 0.00%
RKT $0.00 0.00%
IP $41.50 0.00%
PKG $64.95 0.00%
AAPL $93.24 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs