Does International Paper Co (IP) Deserve More Bullish Attention?

International Paper Co (NYSE:IP) has quietly put in a stellar 2016, but Wall Street remains bearish

Josh Selway
Jul 15, 2016 at 12:05 PM
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Paper manufacturer International Paper Co (NYSE:IP) spiked out of the gate this morning amid heavy volume, and was last seen 3.5% higher at $45.60, though it's not clear why. What is clear is that this outperformance is nothing new from the stock, as IP shares are now quietly up 21% in 2016. What's more, IP stock recently topped its 320-day moving average for the first time in a year, and today's move puts the shares comfortably above the $44 area, which has given them trouble since last August. Given the overwhelming bearish sentiment seen on Wall Street, International Paper could be a prime candidate for contrarian traders. 

For starters, IP has put up a strong technical showing despite a sharp rise in short interest. Short interest on the stock is up 57% in 2016 alone, and the short-interest ratio now comes in at a healthy 3.50. The stock's ability to move higher amid this short-seller onslaught points to underlying technical strength. Of course, extended gains could also force these bears to cover their positions, potentially pushing IP even higher.

Analysts are also skeptical. In fact, two-thirds of the brokerage firms that cover IP say the stock is a "hold" or worse. Going off this point, the shares are now just a stone's throw from their consensus 12-month price target of $46. It certainly appears this outperforming stock is overdue for bullish analyst attention

The sentiment picture among options traders is also bearish. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals put buying has outpaced call buying during the past 10 weeks, and the resulting put/call volume ratio of 1.28 ranks in the 70th annual percentile. Moreover, IP's Schaeffer's put/call open interest ratio (SOIR) of 0.94 ranks just 1 percentage point from a 12-month high. All of this points to an unusual interest in puts from options traders.  

The stock's Schaeffer's Volatility Index (SVI) and Schaeffer's Volatility Scorecard (SVS) also suggest IP could be a solid target for speculators. IP's SVI of 24% ranks below 81% of the past year's readings, meaning the options market is pricing in historically low volatility expectations at the moment. Combine this with the fact that the stock's SVS is 73 -- meaning it has tended to make bigger moves in the past year compared to what the options market has priced in -- and IP's prospects become that much more appealing. 

Some traders are already moving in, as IP options volume is accelerated in today's sessions. At last check, both calls and puts are trading at a pace six times what's normally seen at this point in the day. 

It might also help that International Paper Co (NYSE:IP) is scheduled to report earnings the morning of July 28. Looking back, IP shares have moved higher in the session immediately following an earnings release for the last three straight quarters. 

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