On January 15, Zacks Investment Research upgraded the premier supplier of building materials, Louisiana-Pacific Corporation (LPX - Free Report) to Zacks Rank #1 (Strong Buy), driven by a steadily improving housing market, which is increasing the demand of its products.
Why the Upgrade?
Louisiana-Pacific Corporation has been witnessing increasing earnings estimates, reflecting expectations for significantly higher year-over-year earnings growth rates in fiscal 2013 and 2014. The long-term expected earnings growth rate for this stock is 5.0%.
The upward movements of the estimates are driven by solid performance of the Oriental Strand Board (OSB) and Siding segments in third quarter of 2012 and its recent Peace Valley acquisition.
On November 6, 2012, Louisiana-Pacific Corporation’s third quarter 2012 adjusted earnings per share (EPS) of 20 cents missed the Zacks Consensus Estimate by 20%. Results, however, improved significantly from the prior-year quarter loss of 19 cents, owing to improved pricing in the OSB segment.
Though net sales in the quarter improved 33%, it lagged the Zacks Consensus Estimate by 1.5%. Top line improvement was driven by higher volumes at OSB and Siding segments and price increases at the OSB segment.
Following the results of third quarter of 2012, Zacks Consensus Estimate for fiscal 2012 increased 22.2% per share.
The upward movements of the estimates have also been encouraged by the recent agreement with Canfor Corporation (CFP.TO) to acquire the latter’s 50% share in the Peace Valley Oriented Strand Board (OSB) mill, which was until now owned by both the companies.
Louisiana will thereby become the sole owner. The Peace Valley acquisition will strengthen Louisiana’s OSB segment, which reported sales growth of 63% in the third quarter of 2012 owing to an increase in housing activity. This acquisition strengthens the company’s position further to capitalize on the rising housing momentum.
With housing market recovery gaining momentum, there has been a drop in inventory levels and an increase in home prices. As such, most home building companies are gearing up to introduce a number of new homes in order to meet the increase in demand, which implies that demand for building materials has also improved. Particularly, OSB segments and Siding segments are responding well to the market impetus.
Other Stocks to Consider
Other companies with a favorable Zacks Rank and worth considering include Potlatch Corporation (PCH - Free Report) carrying a Zacks Rank #1 (Strong Buy), and Weyerhaeuser Co. (WY - Free Report) carrying a Zacks Rank #2 (Buy).