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Domtar Rides on Modest Revenue Growth, Margin Woes Remain
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On Mar 26, we issued an updated research report on paper & paper products firm, Domtar Corporation .
Domtar is currently seeking growth through profitable investment opportunities with a commitment to pollution-free environment and sustainable practices. The company is also streamlining the cost structure, improving revenue quality and maintaining a healthy cash flow with a disciplined approach to cash utilization.
A steady dividend payment policy is part of Domtar’s long-term strategy of providing attractive risk-adjusted returns to its stockholders. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to execute its growth strategy.
The company remains poised to benefit from top-line growth. Reflecting a compound annual growth rate of 3.6% in revenues in the past 12 years, Domtar focuses on expanding its scale of operations, aiming higher profitability while retaining investors’ confidence.
However, Domtar has grossly underperformed the industry in the last six months with an average decline of 3.2% against a 7.5% gain for the latter. The pulp and paper industry is highly cyclical. Fluctuations in prices and demand for the company’s pulp and paper products have resulted in lower volume and operating margins.
In the paper segment, import challenges also remain headwinds, although productivity and margin expansion are expected to remain on track. Increase in price realization across a number of pulp and paper grades are expected to enhance margins. However, long-term trends indicate some weakness in North American paper demand, which could hamper the company’s top line. Global demand for pulp is also likely to be volatile due to consumer inventory swings.
The company faces tremendous competitive pressure from local and some global producers, often with relatively greater financial resources and lower production costs. As such, Domtar has to make continuous investments in value drivers that act as a hedge against stiff competition, which limit its profitability. The Personal Care segment faces challenges from higher maintenance and raw material costs that could negatively impact operating margins in the future.
Nevertheless, we remain optimistic with the long-term growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry are KapStone Paper and Packaging Corporation , Veritiv Corporation , sporting a Zacks Rank #1 (Strong Buy) and Stora Enso Oyj (SEOAY - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KapStone has a long-term earnings growth expectation of 14%.
Veritiv has a long-term earnings growth expectation of 6%. It has exceeded earnings estimates thrice in the trailing four quarters, with an average of 34.7%.
Stora Enso has a long-term earnings growth expectation of 7.5%.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
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Domtar Rides on Modest Revenue Growth, Margin Woes Remain
On Mar 26, we issued an updated research report on paper & paper products firm, Domtar Corporation .
Domtar is currently seeking growth through profitable investment opportunities with a commitment to pollution-free environment and sustainable practices. The company is also streamlining the cost structure, improving revenue quality and maintaining a healthy cash flow with a disciplined approach to cash utilization.
A steady dividend payment policy is part of Domtar’s long-term strategy of providing attractive risk-adjusted returns to its stockholders. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to execute its growth strategy.
The company remains poised to benefit from top-line growth. Reflecting a compound annual growth rate of 3.6% in revenues in the past 12 years, Domtar focuses on expanding its scale of operations, aiming higher profitability while retaining investors’ confidence.
However, Domtar has grossly underperformed the industry in the last six months with an average decline of 3.2% against a 7.5% gain for the latter. The pulp and paper industry is highly cyclical. Fluctuations in prices and demand for the company’s pulp and paper products have resulted in lower volume and operating margins.
In the paper segment, import challenges also remain headwinds, although productivity and margin expansion are expected to remain on track. Increase in price realization across a number of pulp and paper grades are expected to enhance margins. However, long-term trends indicate some weakness in North American paper demand, which could hamper the company’s top line. Global demand for pulp is also likely to be volatile due to consumer inventory swings.
The company faces tremendous competitive pressure from local and some global producers, often with relatively greater financial resources and lower production costs. As such, Domtar has to make continuous investments in value drivers that act as a hedge against stiff competition, which limit its profitability. The Personal Care segment faces challenges from higher maintenance and raw material costs that could negatively impact operating margins in the future.
Nevertheless, we remain optimistic with the long-term growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry are KapStone Paper and Packaging Corporation , Veritiv Corporation , sporting a Zacks Rank #1 (Strong Buy) and Stora Enso Oyj (SEOAY - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KapStone has a long-term earnings growth expectation of 14%.
Veritiv has a long-term earnings growth expectation of 6%. It has exceeded earnings estimates thrice in the trailing four quarters, with an average of 34.7%.
Stora Enso has a long-term earnings growth expectation of 7.5%.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>