International Paper Company

International Paper is a producer of renewable fiber-based packaging, pulp and paper products, operating 29 pulp, paper and packaging mills, 170 converting and packaging plants, 16 recycling plants and three bag facilities. Listed industry peers include Ball Corporation, Packaging Corporation of America, and WestRock Company.

Future Value
My short-term (3-6 week hold) target price for the stock is $61.79, with an initial trailing stop at $52.63. My future (5 year hold) target price for the stock is $92, which is an average annual return of 14%. A prior five year hold of the stock would have returned an average of 15% per year. Past and future gains are based on actual and anticipated earnings. Any investment has the potential for loss, and past performance is no guarantee of future results.

The Tax Act
The Tax Cuts and Jobs Act of 2017 significantly changes U.S. tax law by, among other things, reducing the U.S. federal corporate tax rate from 35% to 21%, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

The law provides companies that have unremitted foreign earnings from investments in foreign subsidiaries and currently hold those earnings overseas, the opportunity to repatriate those earnings by paying a one-time net charge related to the taxation of those unremitted foreign earnings.

The Act also allows for the increase of Federal bonus depreciation from 50% to 100% on certain qualifying assets retroactive to September 27, 2017.

The Federal Accounting Standards Board (FASB) has determined that filers have a policy choice to account for this tax on either a period basis or a deferred tax basis. In addition, the FASB requires that companies include in their financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined.

It is important to note that income tax adjustments required on repatriated earnings will distort a companies earnings and consequently its fair value.

In the case of International Paper Company, the impact of the Tax Act, created a provisional net tax benefit of $1.22 billion in the period ending December 31, 2017. The net tax benefit primarily consists of a net tax benefit for the re-measurement of U.S. deferred taxes of $1.454 billion and an expense for the Transition Tax of $231 million.

Had there been no provisional tax benefit the company's 2017 earnings would have been $5.96 and my fair value estimate would have been $79.

Insider Transactions
For FY17, the company recorded 35 insider trades involving 354,233 shares of stock. Of the 35 insider trades, 19 were Buys involving 271,310 shares of stock, and 16 were Sells involving 82,923 shares of stock, creating an insider buy to sell ratio of 3.3:1.

Fair Warning
International Paper Company (NYSE: IP) - FYE 12/2017 UNDER VALUED The stock is currently trading at levels below my $86 buy target. Please See Linked Worksheet

Disclosure
I hold no shares of International Paper Company in my portfolio.
Posted on 04/01/18