Champion International Paper (IP) and Domtar Paper (UFS) Critical Contrast

Champion International Paper (NYSE: IP) and Domtar Paper (NYSE:UFS) are both basic materials companies, but which is the superior business? We will compare the two companies based on the strength of their dividends, analyst recommendations, earnings, risk, profitability, valuation and institutional ownership.

Institutional & Insider Ownership

82.5% of Champion International Paper shares are held by institutional investors. Comparatively, 95.2% of Domtar Paper shares are held by institutional investors. 0.3% of Champion International Paper shares are held by company insiders. Comparatively, 1.0% of Domtar Paper shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Risk and Volatility

Champion International Paper has a beta of 1.51, indicating that its stock price is 51% more volatile than the S&P 500. Comparatively, Domtar Paper has a beta of 1.62, indicating that its stock price is 62% more volatile than the S&P 500.

Earnings & Valuation

This table compares Champion International Paper and Domtar Paper’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Champion International Paper $21.74 billion 1.02 $2.14 billion $3.49 15.38
Domtar Paper $5.16 billion 0.56 -$258.00 million $2.60 17.71

Champion International Paper has higher revenue and earnings than Domtar Paper. Champion International Paper is trading at a lower price-to-earnings ratio than Domtar Paper, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Champion International Paper and Domtar Paper’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Champion International Paper 9.36% 29.05% 4.44%
Domtar Paper -4.11% 6.02% 2.93%

Dividends

Champion International Paper pays an annual dividend of $1.90 per share and has a dividend yield of 3.5%. Domtar Paper pays an annual dividend of $1.74 per share and has a dividend yield of 3.8%. Champion International Paper pays out 54.4% of its earnings in the form of a dividend. Domtar Paper pays out 66.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Champion International Paper has raised its dividend for 6 consecutive years and Domtar Paper has raised its dividend for 8 consecutive years. Domtar Paper is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a breakdown of recent ratings and price targets for Champion International Paper and Domtar Paper, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Champion International Paper 1 7 6 0 2.36
Domtar Paper 3 8 4 0 2.07

Champion International Paper presently has a consensus target price of $63.25, suggesting a potential upside of 17.50%. Domtar Paper has a consensus target price of $43.45, suggesting a potential downside of 5.62%. Given Champion International Paper’s stronger consensus rating and higher probable upside, equities analysts plainly believe Champion International Paper is more favorable than Domtar Paper.

Summary

Champion International Paper beats Domtar Paper on 11 of the 17 factors compared between the two stocks.

Champion International Paper Company Profile

International Paper Company operates as a paper and packaging company primarily in North America, Europe, Latin America, North Africa, India, and Russia. It operates through three segments: Industrial Packaging, Global Cellulose Fibers, and Printing Papers. The Industrial Packaging segment manufactures containerboards, including linerboard, medium, whitetop, recycled linerboard, recycled medium, and saturating kraft. The Global Cellulose Fibers segment provides fluff, market, and specialty pulps that are used in absorbent hygiene products, tissue and paper products, and non-absorbent end applications. The Printing Papers segment produces printing and writing papers, such as uncoated papers for end use applications, including brochures, pamphlets, greeting cards, books, annual reports, and direct mail, as well as envelopes, tablets, business forms, and file folders. This segment sells uncoated papers under the Hammermill, Springhill, Williamsburg, Postmark, Accent, Great White, Chamex, Ballet, Rey, Pol, and Svetocopy brand names. The company sells its products directly to end users and converters, as well as through agents, resellers, and paper distributors. International Paper Company was founded in 1898 and is headquartered in Memphis, Tennessee.

Domtar Paper Company Profile

Domtar Corporation designs, manufactures, markets, and distributes various communication papers, specialty and packaging papers, and absorbent hygiene products in the United States, Canada, Europe, Asia, and internationally. It operates in two segments, Pulp and Paper, and Personal Care. The company offers business papers, including copy and electronic imaging papers for use with inkjet and laser printers, photocopiers, and plain-paper fax machines, as well as computer papers, preprinted forms, and digital papers for office and home use. It also provides commercial printing and publishing papers, such as offset papers and opaques for sheet and roll fed offset presses; publishing papers comprising tradebook and lightweight uncoated papers for publishing textbooks, dictionaries, catalogs, magazines, hard cover novels, and financial documents; and base papers that are converted into envelopes, tablets, business forms, and data processing/computer forms. In addition, the company offers papers for thermal and flexible packaging, food and medical packaging, medical gowns and drapes, sandpaper backing, carbonless printing, label, and other coating and laminating applications; and papers for industrial and specialty applications that include carrier and treated papers, security papers, and specialized printing and converting applications. Further, it provides softwood, fluff, and hardwood Kraft products for various end products. Additionally, the company offers absorbent hygiene products, which comprise adult incontinence products under the Attends, IncoPack, Indasec, and Reassure brand; and branded and private label briefs, protective underwear, underpads, pads, and washcloths, as well as baby diapers, youth pants, and infant training pants for healthcare, retail, and direct-to-consumer channels. It serves merchants, retail outlets, stationers, printers, publishers, converters, and end-users. The company was incorporated in 2006 and is based in Fort Mill, South Carolina.

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