Back to top

Value

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.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.00 +3.09%
SANCHEZ ENE… SN 34.18 +2.67%
THE PANTRY… PTRY 21.01 +2.04%
CLAYTON WIL… CWEI 117.57 +2.01%
INTEL CP INTC 35.14 +1.86%