Paper Weights: What's Got Barclays Downgrading Paper Stocks

Barclays downgraded three paper industry stocks Monday on concerns shares are trading at 52-week highs on the basis of best-case scenarios that analyst Scott Gaffner said aren’t supported by fourth-quarter results and guidance.

International Paper Co IP was downgraded from Equal-Weight to Underweight, with Barclays lowering its price target from $50 to $45. Street estimates for International Paper remain too high, Gaffner said, and the company faces exposure to rising raw material costs and pension liabilities. Future price increases at International Paper are likely to be offset by cost increases that will dent street estimates, Gaffner said.

Barclays downgraded both Packaging Corp of America PKG and KapStone Paper and Packaging Corp. KS from the Overweight ratings they’ve held for more than a year to Equal-Weight. Barclays’ price target for Packaging Corp was lowered from$92 to $90, while the price target for KapStone was raised to $24.

“The companies have operational variances, but our fundamental view on both stocks is quite similar — growth ahead of the market, stability emanating from limited market share positions along with more steady virgin fiber inputs, plus increasing vertical integration opportunities,” Gaffner said in the report.

KapStone announced earlier this month it had acquired South Carolina-based Associated Packaging, Inc. and Fast Pak, LLC.