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Why is Louisiana-Pacific (LPX) Rallying Amid Inflation Woes?
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Louisiana-Pacific Corporation (LPX - Free Report) or LP’s shares have been rallying recently, owing to its efforts to increase penetration of Siding products in repair/remodel and roll out SmartSide products. Its strategic business transformation efforts, effective cash management and inorganic moves are added positives.
The overall construction and related industries are grappling with significant inflationary pressure and labor woes. Nevertheless, strong demand for SmartSide siding, especially in repair and remodeling applications, and expansion in various markets bode well.
In the past three months, the company’s shares have gained 13.4% against the Zacks Building Products – Wood industry’s 6.3% fall.
Image Source: Zacks Investment Research
Let’s discuss the factors influencing the performance of this leading manufacturer of sustainable, quality-engineered wood building materials, structural framing products and exterior siding.
Major Growth Drivers
Solid Siding Business Prospects Bode Well: LP has been increasing penetration of Siding products in repair/remodel and rolling out SmartSide products. It exited the fiber product line to focus on higher-margin SmartSide strand products. The company also launched ExpertFinish within the Prefinish product line.
Louisiana-Pacific is witnessing significant supply chain woes and inflationary pressure, primarily for material and labor. Yet, it has been witnessing higher-than-expected demand for Smooth SmartSide and ExpertFinish. The Siding unit saw revenue growth of 22% in the first nine months of 2022.
Siding Solutions’ (formerly known as SmartSide) revenues increased 23% year over year for the same period. The increase was mainly attributable to robust demand for its products. Unit shipment was up 8% on a 14% growth in selling prices in the first nine months of 2022.
The company recently announced the expansion of Siding Capacity with the production restart at Peace Valley.
Strategic Business Translation: LP is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and EBITDA mix. It has been focusing on three areas — increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness or OEE initiatives, applying best practices to the supply chain and optimizing infrastructure costs.
The company is improving business by growing the Siding unit and reducing costs. In the past three years, EBITDA in the Siding segment has doubled with a CAGR of 25%.
Although the recent quarters show a significant fall in gross margin and adjusted EBITDA due to above-mentioned factors, its long-term investment in various markets and businesses bode well.
Impressive Shareholders’ Return: Amid the prevailing macroeconomic woes and slowdown in the housing market, when most companies are maintaining cost-saving policies, LP has been consistently enhancing shareholders’ returns through share repurchases and dividends. In the first nine months of 2022, it paid $53 million in dividends and $900 million to repurchase stocks. LPX is committed to returning shareholders at least 50% of cash flow from operations in excess of capital expenditures to sustain core business and grow Siding and value-added OSB.
Some better-ranked stocks that warrant a look in the same Zacks Construction sector include Atlas Technical Consultants, Inc. , Altair Engineering Inc. (ALTR - Free Report) and EMCOR Group Inc. (EME - Free Report) , each carrying Zacks Rank #2 (Buy).
Atlas Technical, an Austin, TX-based company, provides professional testing, inspection, engineering, environmental and program management and consulting services in the United States. The company’s record backlog and robust new award pipeline reflect the business’ prospects. ATCX has become one of the largest providers of mission-critical technical services for infrastructure and environmental markets in the United States.
ATCX’s expected earnings growth rate for 2023 is 76.9%.
Altair Engineering provides software and cloud solutions in simulation, high-performance computing, data analytics and artificial intelligence worldwide.
ALTR’s expected earnings growth rate for 2023 is 21.5%.
Headquartered in Norwalk, CT, EMCOR provides electrical and mechanical construction and facilities services in the United States. EMCOR has been benefiting from solid execution in the U.S. Construction segment — comprising the U.S. Mechanical and Electrical Construction units — as well as disciplined cost control. Also, accretive buyouts have been strengthening its overall results by adding new markets, opportunities and capabilities.
EMCOR’s 2022 and 2023 are expected to grow 10.2% and 17%, respectively.
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Why is Louisiana-Pacific (LPX) Rallying Amid Inflation Woes?
Louisiana-Pacific Corporation (LPX - Free Report) or LP’s shares have been rallying recently, owing to its efforts to increase penetration of Siding products in repair/remodel and roll out SmartSide products. Its strategic business transformation efforts, effective cash management and inorganic moves are added positives.
The overall construction and related industries are grappling with significant inflationary pressure and labor woes. Nevertheless, strong demand for SmartSide siding, especially in repair and remodeling applications, and expansion in various markets bode well.
In the past three months, the company’s shares have gained 13.4% against the Zacks Building Products – Wood industry’s 6.3% fall.
Image Source: Zacks Investment Research
Let’s discuss the factors influencing the performance of this leading manufacturer of sustainable, quality-engineered wood building materials, structural framing products and exterior siding.
Major Growth Drivers
Solid Siding Business Prospects Bode Well: LP has been increasing penetration of Siding products in repair/remodel and rolling out SmartSide products. It exited the fiber product line to focus on higher-margin SmartSide strand products. The company also launched ExpertFinish within the Prefinish product line.
Louisiana-Pacific is witnessing significant supply chain woes and inflationary pressure, primarily for material and labor. Yet, it has been witnessing higher-than-expected demand for Smooth SmartSide and ExpertFinish. The Siding unit saw revenue growth of 22% in the first nine months of 2022.
Siding Solutions’ (formerly known as SmartSide) revenues increased 23% year over year for the same period. The increase was mainly attributable to robust demand for its products. Unit shipment was up 8% on a 14% growth in selling prices in the first nine months of 2022.
The company recently announced the expansion of Siding Capacity with the production restart at Peace Valley.
Strategic Business Translation: LP is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and EBITDA mix. It has been focusing on three areas — increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness or OEE initiatives, applying best practices to the supply chain and optimizing infrastructure costs.
The company is improving business by growing the Siding unit and reducing costs. In the past three years, EBITDA in the Siding segment has doubled with a CAGR of 25%.
Although the recent quarters show a significant fall in gross margin and adjusted EBITDA due to above-mentioned factors, its long-term investment in various markets and businesses bode well.
Impressive Shareholders’ Return: Amid the prevailing macroeconomic woes and slowdown in the housing market, when most companies are maintaining cost-saving policies, LP has been consistently enhancing shareholders’ returns through share repurchases and dividends. In the first nine months of 2022, it paid $53 million in dividends and $900 million to repurchase stocks. LPX is committed to returning shareholders at least 50% of cash flow from operations in excess of capital expenditures to sustain core business and grow Siding and value-added OSB.
Zacks Rank & Key Picks
Currently, LPX carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks that warrant a look in the same Zacks Construction sector include Atlas Technical Consultants, Inc. , Altair Engineering Inc. (ALTR - Free Report) and EMCOR Group Inc. (EME - Free Report) , each carrying Zacks Rank #2 (Buy).
Atlas Technical, an Austin, TX-based company, provides professional testing, inspection, engineering, environmental and program management and consulting services in the United States. The company’s record backlog and robust new award pipeline reflect the business’ prospects. ATCX has become one of the largest providers of mission-critical technical services for infrastructure and environmental markets in the United States.
ATCX’s expected earnings growth rate for 2023 is 76.9%.
Altair Engineering provides software and cloud solutions in simulation, high-performance computing, data analytics and artificial intelligence worldwide.
ALTR’s expected earnings growth rate for 2023 is 21.5%.
Headquartered in Norwalk, CT, EMCOR provides electrical and mechanical construction and facilities services in the United States. EMCOR has been benefiting from solid execution in the U.S. Construction segment — comprising the U.S. Mechanical and Electrical Construction units — as well as disciplined cost control. Also, accretive buyouts have been strengthening its overall results by adding new markets, opportunities and capabilities.
EMCOR’s 2022 and 2023 are expected to grow 10.2% and 17%, respectively.