Here is Why Investors Should Buy Louisiana-Pacific (LPX) Now
Louisiana-Pacific Corporation LPX or LP has been gaining from solid demand from the U.S. residential market and repair and remodeling (R&R) business. Strategic business transformation, effective cash management and inorganic moves are likely to boost its future performance.
Although intense inflationary pressure and persistent supply chain woes along with project delays are grappling the company, its impressive price performance and prospects are commendable.
Shares of LPX have gained 5% in the past year against the Zacks Building Products – Wood industry’s 3.1% fall. Earnings estimates for 2022 have also moved up 14.2% in the past 30 days, indicating 6.4% year-over-year growth. The company has a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing nine quarters. This trend reflects bullish analyst sentiments. Its impressive VGM Score of A is a testimony to this fact.
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Let’s delve into the factors influencing the performance of this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Solid Housing Momentum
Despite being hurt by various supply and COVID-related issues, the U.S. housing and related industries are benefiting from solid demand backed by lower interest rates, the need for new homes among buyers for separate work-from-home space, limited inventory and job gains.
Throughout 2021 and first-quarter 2022, LP witnessed strong demand for all products, including SmartSide and OSB, primarily driven by the ongoing momentum in homebuilding, repair and remodeling activities.
Strategic Business Translation
LP is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and EBITDA mix. It has been mainly focusing on three areas — increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness or OEE initiatives; applying best practices to the supply chain; and optimizing infrastructure costs. From January 2019 to 2020, LP achieved $178 million in cumulative EBITDA from growth and efficiency. During first-quarter 2022, adjusted EBITDA increased 37.7%, primarily backed by higher OSB prices, strong volume (primarily in the Structural Solutions unit) and increased raw material costs.
The company remains focused on improving business by growing the Siding unit and simultaneously reducing costs. The company has been mainly focusing on three areas - increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness or OEE initiatives; applying best practices to its supply chain; and optimizing infrastructure costs. In the past three years, EBITDA for the Siding segment has doubled with a CAGR of 25%.
Cost-Containment Efforts
Louisiana-Pacific is well-positioned for segmental growth despite a challenging 2020 and 2021. To reduce costs, Louisiana-Pacific lowered the cost structure of its facilities through Lean Six Sigma efforts, the sale or shutdown of underperforming mills and manufacturing facilities and investments in technology. It resorts to a strategy of curtailing production at selected facilities to meet customer demand and optimize portfolio as well as margins. In 2021, SG&A expenses — as a percentage of net sales — improved 130 basis points on a year-over-year basis, attributable to persistent cost-effective techniques implemented by the company.
Inorganic Moves & Business Expansion
Louisiana-Pacific’s business banks on acquisitions, business combinations and divestitures of low-profitable businesses. In sync with the strategy, the company confirmed capacity expansion projects at Houlton and the restart of the Peace Valley mill during first-quarter 2021. During first-quarter 2022, it announced that Houlton started SmartSide production in March and is shipping A-grade SmartSide. Also, it intends to accelerate the Sagola conversion and start SmartSide production by the end of first-quarter 2023.
In December 2021, the company announced the purchase of Bath, New York, where it plans to build the fourth ExpertFinish facility and double the prefinishing capacity by 2022. Also, it will expand its existing ExpertFinish facilities in Green Bay, St. Louis and Roaring River.
In June 2020, it completed the divesture of the Nova Scotia, Canada-based East River facility to Maibec, Inc. for $16 million. Maibec also took charge of the assets and brand rights of CanExel — the fiber-based siding product manufactured in the East River facility. Moreover, LP’s Siding business will now focus on meeting higher customer demand for its strand-based siding products.
Return to Shareholders
LP has been consistently enhancing shareholders’ return through share repurchases and dividends. In 2021, the company paid $66 million worth of dividends and $1.3 billion to repurchase 21.1 million stocks. In first-quarter 2022, it paid $19 million worth of dividends and $104 million to repurchase stocks. LPX is committed to return to shareholders at least 50% of cash flow from operations in excess of capital expenditures to sustain core business and grow Siding and value-added OSB.
Key Picks
Weyerhaeuser Company WY is one of the leading U.S. forest product companies. This Zacks Rank #1 stock has been benefiting from solid new residential construction activity, which in turn is leading to improved demand. Also, its focus on operational excellence has been advantageous over time.
The Zacks Consensus Estimate for WY’s 2022 earnings has moved up to $3.20 per share from $2.83 in the past 30 days.
Boise, ID-based Boise Cascade Company BCC — which currently carries a Zacks Rank #2 — is aided by factors like favorable commodity wood products, pricing, and robust construction activity.
BCC’s earnings estimate for 2022 has moved north to $18.43 per share from $15.07 in the past 30 days.
Jacksonville, FL-based Rayonier Inc. RYN is well-positioned to capitalize on robust domestic demand trends, with a solid portfolio of timberlands in some of the most productive timber-growing regions of the Southern United States, Pacific Northwest and New Zealand. This will help the company improve the export market conditions and create a favorable pricing environment. RYN is also focused on adding high-quality timberlands to its portfolio through acquisitions.
The consensus estimate for this Zacks Rank #2 player’s 2022 earnings has witnessed an upward revision from 61 cents per share to 65 cents in the past 30 days.
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