Klabin S.A. (KLBAY) and International Paper Company (IP) are prominent players in the paper industry. Headquartered in São Paulo, Brazil, KLBAY supplies domestic and foreign markets with wood, packaging paper, paper sacks, corrugated cardboard boxes, and pulp through Forestry, Paper, Conversion, and Pulp segments.
IP operates as a paper and packaging company that operates through Industrial Packaging; Global Cellulose Fibers; and Printing Papers segments internationally. It sells its products directly to end-users and converters through agents, resellers, and paper distributors.
Rising demand for paper and related products for sustainable and eco-friendly packaging in e-commerce, food and beverage, and healthcare industries should drive the paper industry’s growth. Packaging accounts for the largest share of global paper and paperboard.
The global paper products market is expected to grow at a 2.5% CAGR to reach $265.48 billion by 2027. Therefore, both KLBAY and IP should benefit. But which of these stocks is a better pick now? Let’s find out.
Recent Financial Results
For the fiscal 2022 first quarter ended March 31, 2022, KLBAY’s revenue increased 25.5% year-over-year to R$5.04 billion ($964.39 million). The company’s gross profit came in at R$2.08 billion ($397.01 million), representing an 85.5% rise from the prior-year period. Its operating income came in at R$1.48 billion ($283.15 million) for the quarter, indicating a 117.9% year-over-year improvement.
KLBAY’s net income came in at R$874.87 million ($167.25 million), up 108% from its year-ago period. As of March 31, 2022, the company had R$4.15 billion ($793.30 million) in cash and cash equivalents.
For the fiscal 2022 first quarter ended March 31, 2022, IP’s net sales increased 14% year-over-year to $5.24 billion. The company’s operating income came in at $362 million for the quarter, representing an 18.3% rise from the year-ago period.
Its adjusted net earnings came in at $288 million, up 45.5% from the year-ago period. IP’s adjusted EPS came in at $0.76, up 52% year-over-year. As of March 31, 2022, the company had $1.03 billion in cash and temporary investments.
Past and Expected Financial Performance
Over the past three years, KLBAY’s revenue, EBITDA, and total assets have increased at CAGRs of 19.1%, 18.8%, and 9.9%, respectively.
KLBAY’s revenue is expected to increase 21.8% year-over-year in fiscal 2022, ending December 31, 2022, and 1.3% in fiscal 2023.
Over the past three years, IP’s revenue, EBITDA, and total assets have declined at 5%, 9.5%, and 9.7% CAGRs, respectively.
Analysts expect IP’s revenue to increase 10.4% year-over-year in fiscal 2022, ending December 31, 2022, and 0.9% in fiscal 2023.
Valuation
In terms of trailing-12-month Price/Cash Flow, IP is currently trading at 7.45x, 114.1% higher than KLBAY’s 3.48x. In terms of forward EV/EBITDA, KLBAY’s 5.30x compares with IP’s 6.23x.
Profitability
IP’s trailing-12-month revenue is 5.5 times that of KLBAY’s. However, KLBAY is more profitable, with a 39.3% gross profit margin versus IP’s 28.4%.
Furthermore, KLBAY’s ROE, ROA, and ROTC of 56.6%, 7.3%, and 8.3% compare with IP’s 14.6%, 3.7%, and 6.8%, respectively.
POWR Ratings
While KLBAY has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, IP has an overall B grade, equating to Buy. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both KLBAY and IP have a B grade for Value, which is in sync with their lower-than-industry valuation ratios. KLBAY’s 5.30x forward EV/EBITDA is 15.1% lower than the 6.24x industry average. IP’s 6.23x forward EV/EBITDA is marginally lower than the 6.24x industry average.
KLBAY has been graded a B in terms of Stability, which is in sync with its lower volatility compared to broader markets. KLBAY has a 0.72 beta. IP’s C grade for Stability reflects its relatively higher beta value.
Of the 14 stocks in the A-rated Industrial - Paper industry, KLBAY is ranked #1, while IP is ranked #8.
Beyond what we have stated above, our POWR Ratings system has graded IP and KLBAY for Sentiment, Quality, Growth, and Momentum. Get all KLBAY ratings here. Also, click here to see the additional POWR Ratings for IP.
The Winner
The growing demand for paper and paper products in packaging should allow paper manufacturers KLBAY and IP to grow. However, a relatively lower valuation and higher profitability make KLBAY a better buy here.
Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Industrial - Paper industry.
KLBAY shares were trading at $7.70 per share on Wednesday afternoon, down $0.02 (-0.26%). Year-to-date, KLBAY has declined -10.98%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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