Louisiana-Pacific Corp. (LPX): Zacks Rank Buy
Louisiana-Pacific Corporation (LPX) gained significant momentum after acquiring the remaining shares in the Peace Valley joint venture from its partner, Canfor Corporation. This Zacks Rank #1 (Strong Buy) building products company also reported solid third quarter results in early November thanks to improving housing fundamentals, and is poised to perform well when it reports in February. Earnings estimates have been advancing sharply, leading to significantly higher year-over-year growth rates for fiscal 2013 and fiscal 2014.
Acquisition of Peace Valley Mill
In the fourth quarter of 2012, Louisiana-Pacific Corporation acquired Canfor Corporation's 50% share in the Peace Valley Oriented Strand Board (:OSB) joint venture, which was previously owned by both the companies. Louisiana-Pacific paid $75 million for this mill located in Fort St. John, British Columbia and thereby became the sole owner.
The Peace Valley acquisition will strengthen production capacity of LPX's OSB segment, which manufactures and distributes OSB structural panel products. The segment is already doing well with sales growing in the third quarter of 2012, owing to an increase in housing activity that is driving both volume and pricing growth.
Bright Outlook for Upcoming Quarter
Louisiana-Pacific will report its fourth quarter results on Feb 8. The current Zacks Consensus Estimate is 20 cents per share. With a good Zacks Rank and Earnings Expected Surprise Prediction (ESP) (Read Zacks Earnings ESP: A Better Method) of 5.0%, Louisiana-Pacific looks poised to beat the Zacks Consensus Estimate in the quarter.
Louisiana-Pacific's third quarter 2012 adjusted earnings per share of 20 cents was a turnaround from last year's loss of 19 cents. Improved pricing and volume growth in its largest segment, OSB, drove the earnings beat. Net sales in the quarter improved 33% to $468 million, owing to higher volumes at OSB and the Siding segments, as well as price increases at the OSB segment.
The U.S. housing industry is improving steadily. Demand for new home construction is gaining traction, which is leading to higher demand and improved pricing for Louisiana-Pacific's building materials products. Furthermore, management believes that they have ample capacity in each of their business segments, which can be utilized as market demand improves.
Earnings Estimates Jumping
Over the last 60 days, the Zacks Consensus Estimate for fiscal 2012 has advanced 27.6% to 37 cents, reflecting year-over-year growth of 136.9%. The Zacks Consensus Estimate for fiscal 2013 advanced 51.6% to 97 cents over the same time frame, suggesting year-over-year growth of 166.1%.
Attractive Valuation
Louisiana-Pacific has an attractive valuation and currently trades at a forward price-to-earnings (P/E) of 21.70x, a discount of 33.5% to the peer group average. On a price-to-sales and a price-to-book basis, the stock is trading at discounts to industry averages.
Shares of Louisiana-Pacific have been rising consistently since early June 2012 and reached a 52-week high of $21.39 on Jan 9, 2013, a few days after the Peace Valley announcement. The stock price has almost tripled since the Sep/Oct 2011 lows, when the housing market was fragile.
Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $18.26 and $13.22, respectively. In fact, the stock has been consistently trading above its 50-day moving average since early Oct 2012 and the 200-day moving average since the end of Feb 2012.
Volume averages roughly 1860K daily. The year-to-date return for the stock is 9.21%, compared with the S&P 500's return of 4.65%.
Based in Nashville, Tennessee, Louisiana-Pacific Corporation is engaged in the manufacture and distribution of oriented strand board, engineered wood products, siding, decking, molding, and wall coverings at facilities throughout the United States and Canada. The market cap of the company is $2.91 billion.
With the overall housing market improving steadily, there are many building products companies that are currently performing well, have a bright outlook and are worth considering. These include Potlatch Corporation (PCH) - Zacks Rank #1 (Strong Buy) and Weyerhaeuser Co. (WY) - Zacks Rank #2 (Buy). Construction materials company Eagle Materials Inc. (EXP) - Zacks Rank #1 (Buy) is also worth a look.
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