International Paper (NYSE: IP), the largest paper products firm in the world, has not been immune to the global economic crisis.
As businesses continue to forecast retraction or slow growth at best, the demand for the products manufactured and distributed by International Paper is experiencing a sharp decline as well.
Despite the difficulty in the economy, the company is holding its leading position as producer of uncoated paper, industrial and commercial packaging, and pulp. It also distributes printing and specialty packaging to the graphic arts industry through its subsidiary, Xpedx.
Recent moves by International Paper appear to have been designed to reduce the impact of the recessionary environment on company earnings. The company has slimmed down significantly, selling its specialty chemical operations, disposing of the majority of its lumber and wood products businesses, and selling most of its 6.3 million acres of forestland, while retaining much of its substantial holdings of Brazilian forestland.
With more than $9.6 billion in long-term debt on its balance sheet, International Paper remains a highly leveraged company. Its long-term debt-to-equity ratio is 1.28 compared with the industry average of 0.82. Its total debt-to-equity ratio is 1.36.
While International Paper has a relatively large amount of long-term debt, the company also has a highly favorable current ratio of 1.6. The industry as a whole has an average current ratio of 0.97. The company's long term-debt-to-total-capital ratio is also a favorable 0.56.
As an additional indication of financial strength as compared to the industry, International Paper has interest coverage of 17.55, while the industry averages 0.97 interest coverage.
IP operates with a high degree of efficiency. Revenue per employee in the most recent reporting period was $468,000, well above the competition's $334,000. Net income per employee also exceeded the industry average, at $16,200 versus $11,900.
These ratios position the company as relatively low risk with medium growth potential and medium overall financial strength. While the company's stock has been underperforming the S&P 500 in recent months, it is nonetheless rated a buy at the current price of around $11.50, which is near its 52-week low and well below the 52-week high of $33.77.
Bonds issued by International Paper are widely and actively traded.
Medium-term bonds maturing in 2014 with a coupon of 7.40% are trading below 84, generating a yield to maturity of more than 11.5%. Trading at these levels, International Paper bonds merit strong consideration for investors seeking opportunities in this sector, but unwilling to commit to the stock at this time.
In addition to the attractive rate of current return, the bond presents an opportunity for capital gains as well as the default premium being required of even high-quality corporate bonds declines in the next few years.
Jamie Dlugosch is a contributor to InvestorPlace.com. James F. Dlugosch contributed to this article.
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