The company has also implemented effective cost

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increasing its dividend, with a 3% increase in November 2017. The company has also implemented effective cost-cutting measures while integrating acquisitions; in all, it expects acquisition-related synergies of $200 million in 2018, which should help to offset rising input costs. On valuation, IP is trading at 13.2-times our 2018 EPS forecast, below the midpoint of the five-year annual range of 7.8-21.2 and the average multiple of 17.7 for close competitors. The dividend yield of about 3.1% is above the peer average of 2.3%, indicating value. Our target price of $70 implies a multiple of 14.9-times our 2018 EPS estimate, near the midpoint of the five-year range and below the peer average. We believe that the recent decline in share price offers investors an attractive entry point.
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M ARKET U PDATE - 9 - RECENT DEVELOPMENTS IP shares have outperformed the S&P 500 over the past three months, rising 8.8% while the index has gained 6.7%. They have gained 17.3% over the past year, compared to a gain of 20.2% for the index. The beta on the stock is 1.5. On February 1, the company reported 4Q17 non-GAAP net income of $530 million or $1.27 per diluted share, up from $279 million or $0.67 per share in 4Q16. EPS topped the consensus of $1.19 and our estimate of $1.18. Non-GAAP earnings excluded a provisional net tax benefit of $1.2 billion ($2.93 per diluted share) related to the passage of the Tax Cuts and Jobs Act of 2017. Fourth-quarter revenue rose to $5.71 billion from $5.38 billion in 4Q16, but fell short of the consensus forecast. The year- over-year increase in revenue reflected higher realized prices, and record volume in North American Industrial Packaging and Global Cellulose Fiber. For the full year, IP posted adjusted EPS of $3.60, up from $3.36 in 2016. Revenue was $22.9 billion, up from $21.1 billion a year earlier. On September 26, 2017, International Paper agreed to purchase a group annuity contract from Prudential Insurance and transfer to Prudential future pension benefit obligations and annuity administration for approximately 45,000 participating employees. The agreement will reduce IP’s $14 billion in pension plan liabilities by approximately 9%. On September 22, IP announced plans to convert its #15 paper machine at Riverdale Mill from uncoated freesheet to high- quality whitetop linerboard and containerboard. The conversion, which is expected to be completed by 2019, will add 450,000 tons of annual capacity and provide the ability to shift manufacturing among different containerboard products. IP will invest $300 million in the project. EARNINGS & GROWTH ANALYSIS We expect IP to generate $200 million in acquisition-related synergies in 2018. We are boosting our 2018 EPS estimate from $4.35 to $4.70, which assumes further acquisition synergies along with increased production and higher pricing. We are initiating a 2019 estimate of $5.15. Assuming further global economic recovery, we believe that IP will continue to leverage its geographically diverse revenue base to generate stronger earnings and cash flow.
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