INTERNATIONAL PAPER CO /NEW/ (IP) stock intrinsic value fair value estimate & owner earnings analysis

International Paper makes containerboard in large paper mills and converts it into corrugated boxes in a network of box plants. After a run of portfolio changes it is now almost entirely a packaging company: the printing-papers business was spun off as Sylvamo in 2021, the Russian Ilim joint venture was sold, DS Smith (a UK-based European box maker) was bought for shares on January 31, 2025, the Global Cellulose Fibers pulp business was sold for $1.5 billion in January 2026, and the NORPAC mill in Longview, Washington ($360 million) and the Delmarva box plant in Dover, Delaware were bought in the second quarter of 2026. On January 29, 2026 the company announced it will spin off its Europe, Middle East and Africa packaging business to shareholders as a separate public company within 12 to 15 months. Because shareholders keep both pieces, we value the combined business. How we measured earnings. We start from operating cash flow, remove swings in working capital, subtract stock compensation as a real cost, and subtract capital spending needed to keep the mills and plants running. On that basis the company produced about $1.1 billion a year before interest in each of 2023, 2024 and 2025 (about $0.58 billion to $0.69 billion after interest), well below the $2.3 billion to $2.8 billion of 2018 to 2021. Part of that fall is the businesses that left (printing papers, Ilim dividends, pulp), part is a weak box market since 2023, and part is much heavier capital spending: about $1.86 billion in 2025 and $1.05 billion in the first half of 2026, against a ten-year average of about 5.5% of sales. We counted all of that spending as upkeep, which is conservative. The large 2025 charges, a $2.47 billion write-down of European goodwill and a $1.07 billion loss on the pulp sale, are non-cash and do not reduce cash earnings. They do show that the company paid too much for DS Smith only a year earlier, and that risk is carried in the bear case. We have no full business cycle for the business in its current shape, so we used the 2025 result (which still included the pulp business and the DS Smith integration costs) and the first half of 2026 (roughly $1.1 billion a year before interest) as the starting level. We did not use the pandemic boom years as a normal level. Base case. Cash earnings before interest of about $1.1 billion next year, slightly below 2025. They rise to $1.35 billion by year four for two reasons. First, the business moves from today's weak box market back to an ordinary one; by our estimate the legacy business, excluding the parts since sold, earned about 35% more in middle-of-cycle years than at the 2023-2024 low, and we assume only part of that. Second, capital spending comes down by about $150 million as projects already under way finish. The Riverdale mill conversion was completed in the second quarter of 2026. After that, earnings stay flat with no growth, because spending on upkeep is fully charged and keeps the mills and box plants able to earn. The business is worth about $22.0 billion. It owes about $8.5 billion net ($9.2 billion of debt less $0.7 billion of cash at June 30, 2026). That leaves about $13.6 billion, or roughly $25.60 a share. Bear case. The weak box market continues and the European business keeps disappointing, as the goodwill write-down already suggests. Cash earnings before interest slip from $0.9 billion to $0.85 billion and stay there. Capital spending stays high, and running two separate public companies adds overhead. The business is worth about $14.2 billion. After $8.5 billion of net debt, about $5.7 billion is left, or roughly $10.80 a share. Even here, cash earnings cover interest (about $0.5 billion a year) about 1.8 times. Debt due within a year is about $1.0 billion, which this investment-grade company should be able to refinance. Bull case. The box market returns to an ordinary level, and the 2025 closures of the high-cost Savannah and Riceboro containerboard mills lower costs as intended. Capital spending falls back toward the company's own history but stays above it. Cash earnings before interest reach $1.8 billion by year four and then stay flat. The business is worth about $28.9 billion. Less $8.5 billion of net debt, that leaves about $20.4 billion, or roughly $38.50 a share. We gave no credit to management's synergy targets or to new plants that are not yet built. Since our previous estimate. Our August 2026 estimate discounted each case at a different, risk-adjusted rate and worked directly from cash earnings after interest. We now value the business before its lenders at one rate, subtract the debt, and carry the risk in the cases themselves. The business facts are largely unchanged; the change in approach raised the bear case from zero and the base case from about $18, and lowered the bull case from about $58. What would make this wrong. The shares are sensitive to debt: a 10% change in the long-run earnings level moves the base value by about $4 a share. A longer slump in containerboard prices, more costly acquisitions or capital spending that stays near $2 billion with no rise in earnings would push the value toward the bear case. The debt of the timber-related entities on the balance sheet ($2.1 billion) is non-recourse and is matched by notes receivable held by those entities, so we left it out. The pension shortfall is small and its payments already run through cash flow.