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Domtar Corporation (UFS - Snapshot Report) has successfully navigated the paper market in 2010. Earnings are expected to grow an astounding 923% in 2010 after a difficult 2009. The company is cheap. It trades at just 7.5x forward estimates.

The Montreal-based Domtar is the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and is #2 in the world. It operates 9 pulp and paper mills in the United States and 4 in Canada.

It also operates a Paper Merchants segment which designs and manufactures business, commercial printing and publishing papers.

Domtar Crushed the Zacks Consensus in the Third Quarter

On Oct 29, Domtar reported third quarter results and surprised on the Zacks Consensus for the 6th quarter in a row. Earnings per share were $4.26 compared to the Zacks Consensus of $3.28 which was a 30% surprise. It earned just $1.32 per share in the third quarter last year.

The company had routinely missed the estimate during the worst of the recession but has come back strongly with an average beat of 48% in the last four quarters.

Paper shipments rose 0.5% from the second quarter of the year while pulp shipments actually declined 15%.

Still, the company is being cautious.

"While demand for fine paper is fairly stable, we remain conservative in our business approach because of continued high levels of unemployment in the U.S. and economic uncertainty," said John D. Williams, President and CEO.

Due to seasonality issues, paper shipments are expected to be lower in the fourth quarter.

Zacks Consensus Estimates Climb

It has been a huge turnaround in earnings for Domtar in 2010. In 2009, the company made just $1.06. In 2010, analysts expect $10.85, which is up from $9.05 per share from 60 days ago.

In 2011, however, analysts see a slowdown. Earnings are expected to drop 29% to $7.73 per share.

Lots of Value in Domtar

Domtar is cheap. Not only does it have the low, single digit P/E ratio, but its price-to-book is just 1.2, which is well within the value stock range.

The company also has a solid 1-year return on equity (ROE) of 15.8%, well above its peers at 10.1%.

Domtar is a Zacks #1 Rank (strong buy) stock.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

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