International Paper Company (IP): This Multi-Billion Dollar Hedge Fund Loves Paper, Should We?

One of International Paper Company (NYSE:IP’s key strategies includes pursuing strategic acquisitions. This includes the recent acquisition of Texas-based Temple-Inland, which is the company’s largest since acquiring Weyerhaeuser Company (NYSE:WY)’s corrugated-packaging business for $6 billion in August 2008. This helped IP meet its $300 million synergy target a year ahead of schedule, and IP now expects an additional $100 million in synergies before the full Temple-Inland integration is complete.

Moreover, the combination will fortify the packaging business of North America by increasing its share in the corrugated packaging market to 34% from the current level of 27%. Other key initiatives includes those in Russia, China and Brazil, namely its joint venture in Russia for a pulp mill in Bratska and a new paper machine at the Koryazhma mill in Russia.

The headwind for Domtar is the expectation that pulp prices for 2013 will remain weak. Domtar Corp (USA) (NYSE:UFS) reported fourth quarter EPS that came in at $1.31, compared to $1.87 for the same period a year ago. This was also below analysts’ estimates of $1.40, but new ventures in personal care and specialty papers should help the company longer-term; still, hedge funds appear to be bearish on the company for now.

Clearwater Paper Corp (NYSE:CLW) is a producer of private label tissue and paperboard products, with a focus on products primarily manufactured in the U.S. and Canada. One of the big drivers for 2013 should be its new tissue machine. Demand for tissue is expected to expand along with a rising population. Clearwater Paper Corp (NYSE:CLW) is well positioned in the private label tissue market and has an opportunity to increase its share in the Eastern U.S. Clearwater managed to report 4Q earnings results that had EPS of $0.84, beating consensus by $0.04 and well above $0.55 from the same quarter last year, but I am not a fan of its overexposure to the tissue market.

P.H. Glatfelter Company (NYSE:GLT) manufactures specialty papers and fiber-based engineered materials. P.H.’s major growth area includes tea bags, which should continue to see impressive demand on the back of a rising economy. P.H. Glatfelter Company (NYSE:GLT) is also looking to grow via acquisitions, with its pending $209 million acquisition of Dresden Papier. Dresden makes non-woven wallpaper materials, with P.H. expecting the planned acquisition to be accretive to EPS by $0.25 annually upon completion of the deal. The deal announcement and a recent 11% increase in its dividend payment has already lifted the stock 30% year to date.