By Brazil Stock Guide – Klabin SA (B3: KLBN11) said Monday that it expects cash generation to strengthen from 2027 as spending declines following the completion of its Monte Alegre modernization project. The company also plans to prioritize share buybacks as leverage falls, according to reports from XP Inc. (Nasdaq: XP) and Banco BTG Pactual SA (B3: BPAC11), whose analysts attended a meeting with Chief Financial Officer Gabriela Woge and the investor-relations team.
Management described 2026 as a transition year, with free cash flow still constrained by higher fuel, freight and raw-material costs. The outlook for the second half was slightly more constructive, supported by seasonally stronger volumes, announced paper-price increases and operational improvements.
XP Sees 39% Upside
XP maintained its buy recommendation on Klabin’s units, with a price target of R$25. Based on the R$18.01 reference price used in the report, the target implies 39% upside.
The brokerage expects earnings before interest, taxes, depreciation and amortization of R$7.77 billion in 2026 and R$8.08 billion in 2027. It estimates Klabin will trade at seven times enterprise value to Ebitda this year and 6.8 times in 2027.
XP said the completion of the Monte Alegre boiler project will be central to the expected cash-flow recovery. The project is set to require about R$700 million of capital expenditure in 2026, with spending falling after the work is completed.
Klabin indicated it doesn’t expect to pursue transformational investments in the foreseeable future. A challenging macroeconomic environment, large capital requirements and return thresholds that remain difficult to justify are reinforcing a more selective approach to capital allocation.
BTG Flags Limited Near-Term Catalysts
BTG maintained a neutral rating on KLBN11 and set a R$23 price target, compared with a reference price of R$17.86. The bank forecasts price appreciation of 28.8%, a dividend yield of 5.5% and a total return of 34.2%.
Under BTG’s methodology, a neutral rating means the expected total return is within 10 percentage points above or below the company’s sector average. The bank said operational resilience and gradual improvement across some markets weren’t enough to change its view on the stock.
BTG expects Klabin’s free cash flow yield to remain near zero in 2026, with leverage holding at 3.2 times net debt to Ebitda. The ratio is projected to decline to 3.1 times in 2027 and three times in 2028.
A more significant cash-flow improvement would require both lower capital expenditure and better market conditions across Klabin’s businesses, the bank said. The current backdrop remains pressured by diesel prices, raw-material costs and logistics expenses.
Spending Set to Drop by R$500 Million
BTG estimates Klabin’s capital expenditure will fall to R$2.8 billion in 2027, R$500 million less than in 2026. The decline will mainly reflect the completion of the Monte Alegre modernization project.
Lower spending should release cash and support deleveraging. Management reiterated that it will maintain capital discipline and avoid committing the balance sheet to large projects in the near term.
Land sales and other asset-monetization initiatives are expected to continue. BTG said, however, that none of the transactions under consideration appeared large enough to materially change the company’s financial trajectory.
Buybacks Favored Over Special Dividends
Klabin signaled a growing preference for share repurchases over extraordinary dividends as leverage returns toward its target range.
XP said management views buybacks as the most attractive way to enhance shareholder returns under current conditions. BTG expects most of the announced repurchase program to be executed in 2027, alongside the projected recovery in free cash flow.
Regular dividend payments remain part of the forecasts. BTG projects a net dividend yield of 5.5% in 2026 and 5.6% in 2027.
Cost Guidance Reaffirmed
Klabin maintained its cash-cost guidance of R$3,200 to R$3,300 a metric ton despite pressure from diesel, fuel, freight and raw-material prices.
The company is seeking to offset those increases through supplier contract renegotiations, lower input consumption, operational-efficiency gains and reduced reliance on fossil fuels.
The measures may deliver structural benefits rather than a temporary cost improvement, according to the reports. BTG now estimates paper cash costs of R$3,239 a ton in both 2026 and 2027, compared with a previous forecast of R$3,245.
BTG cut its 2026 revenue estimate by 3% to R$21.27 billion and lowered its 2027 forecast by 2% to R$22.63 billion.
The bank reduced its adjusted Ebitda projections by 2% for 2026, to R$7.90 billion, and by 1% for 2027, to R$8 billion. It raised its adjusted Ebitda-margin estimates to 37.1% and 35.4%, respectively.
Net income is projected at R$1.03 billion in 2026 and R$1.67 billion in 2027.
El Niño Preparations
Klabin is also preparing its forestry operations for the potential effects of El Niño, which is expected to increase rainfall in Paraná state, particularly in the fourth quarter.
The company has increased third-party wood purchases, opened additional roads and adjusted inventory planning. The extra wood purchases have already raised costs, but the measures are intended to prevent disruptions to production volumes.
BTG viewed Klabin’s early preparations positively, while noting that El Niño may become a broader concern for Brazil’s pulp and paper industry.
Uneven Recovery Across Businesses
Hardwood pulp remains Klabin’s weakest segment, though management believes prices are approaching a floor. Fluff pulp has a more favorable outlook, supported by tight global supply, resilient demand and limited risk from new Chinese capacity.
Coated board is expected to post a stronger second half, helped by a better product mix, continued growth in liquid packaging board and selective price increases.
Coated unbleached kraft board is also showing early signs of recovery after a weak 2025. That improvement may gradually support a more profitable product mix at the company’s MP28 paper machine.
The kraftliner outlook has turned more constructive as global capacity closures and price increases support better momentum from the third quarter. Export demand remains healthy, according to BTG.
Packaging and corrugated boxes continue to perform well, supported by resilient demand and service levels. Klabin’s integrated model provides flexibility to manage internal paper consumption and margins, though price increases appear more limited and growth is expected to come mainly from higher volumes.
Pulp Prices Remain a Constraint
Net hardwood kraft pulp prices in China stood at $563 a metric ton, according to XP. Northern bleached softwood kraft pulp was priced at $604 a ton.
Chinese hardwood pulp futures for September 2026 were trading at $568 a ton, down 3% from the previous week but still above spot prices.
BTG lowered its medium-term pulp-price assumption to $550 a ton from $570, citing persistent global overcapacity and pressure on market fundamentals.
The bank said Klabin’s vertical integration, diversified portfolio and forestry assets remain competitive advantages. Still, constrained free cash flow and gradual deleveraging support its neutral rating, while XP’s buy recommendation reflects capital discipline and the expected improvement in cash generation from 2027.
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