Jefferies analyst Philip Ng downgraded International Paper (IP.US) and Packaging Corporation of America (PKG.US) from “hold” to “reduce” and lowered their price targets to $31 and $112, respectively, WisdomTree has learned. (PKG.US) from “Hold” to “Reduce” and lowered their price targets to $31 and $112, respectively. Analysts also lowered their price target on WestRock (WRK.US) to $42, but maintained a “hold” rating on the stock. paper cup fan

The analyst said he found a “massive inventory overhang” in the paperboard industry following a survey of the channel. He said the channel survey showed that orders are decelerating sharply and mass production shutdowns are underway (even for smaller companies). raw paper cup

The analyst explained, “This is not entirely surprising given that retailers have generally been de-stocking recently due to increased inflation and reduced consumer spending on purchases.” “After doubling or tripling paperboard orders over the past two years to secure supply, orders began to fall in July and continued into September as customers and manufacturers dealt with excess inventory as demand suddenly slowed and inventories ended the second quarter at cycle highs.” The analysts noted that the paperboard industry will see price reductions in the fourth quarter and that “the situation could worsen into 2023. cup paper fan

The analysts further noted, “Demand for paperboard is one of the proxies for the economy, and given the exposure of three companies – International Paper, Packaging Corporation of America and WestRock – to more cyclical end markets such as durable goods, their earnings and share prices tend to adjust sharply during economic downturns.” fan papers cup