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Domtar Upgraded to Strong Buy

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On Dec 24, Zacks Investment Research upgraded Domtar Corporation (UFS - Free Report) to a Zacks Rank #1 (Strong Buy) primarily driven by rising earnings estimates.

Why the Upgrade?

Domtar has been looking promising for quite some time now on the back of solid organic and inorganic growth. Moreover, Domtar is also restructuring its portfolio by hiving-off assets which are incompatible with its core competencies.

Recently, Domtar’s wholly-owned subsidiary entered into a definitive agreement with Windmill Development Group Ltd., for the sale of the erstwhile Domtar paper mill site in Ottawa, Ontario and Gatineau, Quebec. Last month, the company also announced the acquisition of privately-held Spanish firm Laboratorios Indas to expand its personal care business in Europe.

Moving forward, Domtar envisions its pulp business to benefit from accelerating global demand, particularly led by China. The company has increased prices for several paper grades, which in turn are expected to augment its revenues toward the end of the current quarter.

With such positive strides, the share prices are continuously moving north and touched a 52-week high of $95.12 during its trading session on Dec 24. Domtar closed the trading session a notch lower at $94.69, reflecting a year-to-date return of 12.2%.

This paper products company has potential for further accretion with a forward PE of 22.5x. Earnings estimate revisions for 2013 have moved up by 6 cents in the past 60 days to $4.21. The current Zacks Consensus Estimate for 2013 is also pegged at $4.21.

Other Stocks to Consider

Other stocks to watch out for in the industry include KapStone Paper and Packaging Corp. (KS - Free Report) , UPM-Kymmene Oyj (UPMKY - Free Report) and Orchids Paper Products Co. (TIS - Free Report) , each carrying a Zacks Rank #2 (Buy).

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