Domtar Corporation (UFS - Free Report) looks promising, at the moment, backed by strong price momentum in the Pulp and Paper businesses and its efforts to streamline the cost structure. We are optimistic on the company’s prospects and believe this is the right time to add the stock to your portfolio, as it is poised to carry the bullish momentum ahead.
Let's delve deeper and analyze the factors that make this manufacturer of fiber-based products including communication, specialty and packaging papers an attractive investment option.
What's Working in Favor of Domtar?
Solid Rank & VGM Score: Domtar currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company also flaunts a Value Growth Momentum Score (VGM Score) of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or #2, offer the best investment opportunities. Thus, the company appears to be a potential investment proposition at the moment.
Above the Industry: Over the past year, Domtar has outperformed the industry it belongs to. The company’s shares have jumped around 20% compared with 14% growth recorded by the industry during the same time frame.
Upward Estimate Revisions: The Zacks Consensus Estimate for earnings per share for 2018 has increased 10% to $3.62, in the last 30 days. The same for 2019 has gone up 6.5% to $6.42 during the same time period.
Positive Earnings Surprise History: Domtar has an impressive earnings surprise history. It outpaced the Zacks Consensus Estimates in three of the trailing four quarters, delivering an average positive earnings surprise of 18.66%.
Strong Q1 Results: Domtar’s first-quarter 2018 earnings and revenues increased on a year-over-year basis and also beat the respective Zacks Consensus Estimate. The company’s results were driven by strong price momentum in the Pulp and Paper businesses.
Notably, manufactured paper shipments in the first quarter were up 3%, year over year, while average transaction prices for all paper grades increased $3 per ton. Average pulp prices increased $144 per metric ton from the year-ago quarter on solid global demands. The company further witnessed an uptrend in prices for uncoated freesheet in April driven by healthy demand trends.
Growth Drivers in Place: Domtar is currently seeking growth through profitable investment opportunities with a commitment to pollution-free environment and sustainable practices. It is also streamlining the cost structure, improving revenue quality and maintaining a healthy cash flow, with a disciplined approach to cash utilization.
Moreover, Domtar continues to benefit from a bullish price momentum in the Pulp and Paper businesses. Buoyed by improving growth dynamics, Domtar announced a $40-$60 price increase on softwood and fluff pulp grades for May shipments in North America and Europe.
Domtar has a long-term earnings growth rate of 5%.
Other Stocks to Consider
Some other top-ranked stocks in the same sector are The Chemours Company (CC - Free Report) , FMC Corporation (FMC - Free Report) and Celanese Corporation (CE - Free Report) . While Chemours Company and FMC Corporation flaunt a Zacks Rank of 1, Celanese Corporation carries a Zacks Rank #2 (Buy).
Chemours Company has a long-term earnings growth rate of 15.5%. The stock has rallied 21% in a year’s time.
FMC Corporation has a long-term earnings growth rate of 14.3%. Its shares have improved 18% over the past year.
Celanese Corporation has a long-term earnings growth rate of 8.9%. The company’s shares have gained 18% during the past year.
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