International Paper CompanyIPNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $79.96 per share(market-calibrated)

+86.4%

Upside to Fair Value

Current

$42.89

Pure Model

$86.13

Fair Value

$79.96

Bull Case

$108.87

Bear Case

$66.50

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $86.13.

What's Driving This Ratingfor IP

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.34% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$110M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 2.36% — below the sector mature average of 12.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.1B (9.47% margin).

→

Moderate revenue growth

Analyst consensus projects -0.72% revenue growth, fading to 3.00% by Year 10. Revenue reaches $32.5B (vs $24.9B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $73.01/share (24.1x terminal FCF) while exit multiple gives $99.25/share (33.1x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 60.42% indicates efficient cash generation. FCF reaches $3.1B by Year 10 (9.51% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.07

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.32%

Cost of Debt

Pre-tax Cost of Debt3.81%

Tax Rate21.00%

After-tax Cost of Debt3.01%

Equity Weight (E/V)67.70%

Debt Weight (D/V)32.30%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (67.70% × 9.32%) + (32.30% × 3.01%)

= 7.28%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$24.7B	$26.5B	$28.1B	$29.8B	$32.5B
EBIT	$583M	$626M	$1.2B	$2.1B	$3.1B
Tax	$123M	$132M	$253M	$442M	$647M
NOPAT	$461M	$495M	$951M	$1.7B	$2.4B
+ Depreciation	$1.5B	$1.7B	$1.8B	$1.9B	$2.0B
- Capex	$1.1B	$1.1B	$1.2B	$1.2B	$1.3B
- Δ NWC	-$15M	$67M	$67M	$72M	$78M
Free Cash Flow	$953M	$960M	$1.5B	$2.2B	$3.1B
Discount Factor	0.932	0.810	0.704	0.611	0.495
Present Value	$888M	$778M	$1.0B	$1.4B	$1.5B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.1B

Terminal Growth Rate3.00%

WACC7.28%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$74.5B

PV of Terminal Value$36.9B

Exit Multiple Method

Year 10 EBITDA$5.1B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$102.4B

PV of Terminal Value$50.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$11.3B

PV of Terminal Value$36.9B

Enterprise Value$48.2B

(-) Net Debt$9.7B

Equity Value$38.6B

Shares Outstanding528M

Price per Share$73.01

Exit Multiple Method

PV of Projected FCFs$11.3B

PV of Terminal Value$50.7B

Enterprise Value$62.1B

(-) Net Debt$9.7B

Equity Value$52.4B

Shares Outstanding528M

Price per Share$99.25

Pure Model Fair Value

$86.13

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
5.28%	$118.32	$128.43	$142.97	$151.14	$144.12
6.28%	$95.20	$100.43	$107.26	$116.55	$129.90
7.28%	$79.24	$82.33	$86.13	$90.94	$97.22
8.28%	$67.24	$69.21	$71.56	$74.39	$77.89
9.28%	$57.71	$59.04	$60.59	$62.41	$64.57

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$66.50

55.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.34

Base Case

$86.13

100.8% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.07

Bull Case

$108.87

153.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.91

Key Assumptions & Drivers• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-0.72%

Year 3 Revenue Growth3.15%

Year 5 Revenue Growth3.00%

Year 7 Revenue Growth3.00%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin2.36%

Terminal EBIT Margin12.00%

Tax Rate21.00%

Historical Capex / Rev4.34%

Terminal Capex / Rev4.00%

NWC / Revenue8.25%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Cyclical sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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