International Paper

Methodology

International Paper's commodity packaging business creates highly cyclical earnings tied to containerboard pricing, which fluctuates with supply-demand imbalances. The company's integrated mill system provides some cost advantages. This calculation is very challenging given extreme cyclicality—normalized assumptions about mid-cycle box prices and mill operating rates are essential, while peak cycle earnings dramatically overstate sustainable profitability.

Methodology

International Paper's PEG ratio swings wildly across packaging cycles, often appearing cheap during recoveries but potentially signaling peak conditions. The company's exposure to e-commerce packaging provides growth but doesn't eliminate cyclicality. For commodity packaging, PEG based on cyclical earnings growth is misleading—valuation should focus on normalized mid-cycle cash flows relative to replacement cost.

Methodology

International Paper pays a meaningful dividend that varies with packaging market conditions. The company targets dividend sustainability through cycles but must balance returns with capital preservation during downturns. PEGY has limited applicability given earnings and cash flow volatility—for commodity packaging, cycle timing and containerboard price outlook matter far more than dividend-adjusted earnings metrics.