Paper maker Domtar upgraded, shares jump

Domtar shares jump after analyst upgrades shares on prospects for strong free cash flow

• On 1:48 pm EST, Monday November 2, 2009

NEW YORK (AP) -- Domtar Corp. rose Monday after an analyst upgraded shares of the paper and wood products maker on prospects that strong free cash flow will aid debt reduction and lead to a big payback for stockholders.

In afternoon trading, the stock gained $2.91, or 6.8 percent, to $44.93.

The Montreal-based company reported Friday an adjusted third-quarter per-share profit of $1.32, compared with the 29 cents analysts expected, according to a Thomson Reuters poll.

Besides the surprisingly large profit, analysts noted free cash flow of $220 million, mostly from government tax credits.

Further, Domtar is in line to receive more aid from U.S. and Canadian governments, and also gain as much as $150 million from asset sales.

Raymond James analyst Daryl Swetlishoff upgraded the stock, to "Outperform" from "Market Perform," and increased his price target to $50 from $45.

"While the shares have had a good run, we regard operational free cash generation ... hundreds of millions in Canadian and U.S. government transfers, and the potential for further deleveraging from non-core asset sales as potential catalysts for further share price appreciation," Swetlishoff said.