Sector Snap: Paper and Packaging
NEW YORK (AP) — Shares of paper and packaging companies that make containerboard fell Monday, after an analyst for Deutsche Bank cut his ratings for a handful of them, saying that they may not be able to go forward with expected price increases this fall.
Mark Wilde lowered his ratings for International Paper Co., Rock-Tenn Co., Packaging Corp. of America and KapStone Paper and Packaging Corp. to "Hold" from "Buy." He noted that over the past seven to eight weeks their share prices have risen significantly ahead of the expected autumn price increase.
"While the market seems to be assuming the hike is a 'done deal,' we are not convinced," Wilde wrote in a note to investors. "We think real questions remain about whether producers can implement and then maintain the increase. If anything, we've become a bit more cautious."
As a result, the responsible thing to do is take a step back and lower the ratings for the companies to "Hold," from "Buy," he said.
Wilde said that demand for containerboard may not be as high as some people think, while costs for producers of recycled containerboard appear to have fallen. He said that while he previously thought there was a 60 to 70 percent chance of a price increase, he now sees it at about only 50 percent.
He added that the markets have placed too much emphasis on the price hike, while means if the increase fails, the short-term, negative effects on the stocks could be "dramatic."
In afternoon trading, share of International Paper fell $1.33, or 3.7 percent, to $34.97; Rock-Tenn dropped $3.58, or 5.1 percent, to $66.76; Packaging Corp. fell 78 cents, or 2.4 percent, to $32.49 and KapStone edged down 48 cents, or 2.3 percent, to $20.74.