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Paper Trail: Goldman Lowers Rating on Georgia-Pacific

When Goldman Sachs paper and forest products analyst Mark Weintraub downgraded Georgia-Pacific (GP) this morning, he wasn't suggesting that he thought any less of the stock's potential. Rather, he just wanted to make certain that investors didn't like it as much as they like International Paper (IP).

Weintraub cut Georgia-Pacific to market perform from its previous market outperform rating -- the latter being the rating of competitor International Paper. The analyst said Georgia-Pacific may have less room to move higher because the stock has already been strong this year. He also pointed out that his own earnings estimate for 2002 is well below the consensus forecast, and he said building products prices may be rolling over again. Additionally, he said that execution risks related to the Fort James merger remain.

The kicker is that these were his reasons for the previous market outperform rating. So why the downgrade? "None of these factors are new, rather the rating change largely serves to provide greater distinction in our stock picking hierarchy with IP (rated MO) currently our top selection among the large caps," Weintraub wrote in a research note.

The analyst did lower his fiscal 2001 earnings estimate on International Paper to 35 cents a share from 45 cents, and he cut his fiscal 2002 EPS estimate to $1.80 a share from $2. According to Thomson Financial/First Call, analysts, on average, expect income of 37 cents a share for fiscal 2001 and earnings of $2.15 a share for fiscal 2002.

He also cut earnings estimates on another market outperform-rated paper stock, Boise Cascade (BCC), to 70 cents a share from 85 cents in fiscal 2001, and to $1.80 a share from $2 for 2002. The consensus estimate is 85 cents for the current fiscal year and $2.43 a share for the next fiscal year.

Shares of Georgia-Pacific rose 0.3% to $33.98 this morning. International Paper climbed 0.7% to $35.99, and Boise Cascade traded higher by 0.5% to $34.99.

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