Domtar Scales New 52-Week High - Analyst Blog

Shares of paper products manufacturer Domtar Corporation UFS touched a new 52-week high of $114.14 on March 26, before closing the trading session a little lower at $111.95. This translates to a healthy year-to-date return of 45.5%. Domtar's share prices have been on a steady uptrend since Sep 2013.

Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock still has enough fundamentals that may further drive it upward. The stock is currently trading at a forward P/E of 11.9x and has a long-term earnings growth expectation of 3.0%.

Growth Drivers

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 do not match its core competencies.

Domtar expects 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.

In December last year, Domtar's wholly-owned subsidiary had entered into a definitive agreement with Windmill Development Group Ltd., for the sale of the erstwhile Domtar paper mill sites in Ottawa, Ontario and Gatineau, Quebec. The company also announced the acquisition of privately-held Spanish firm Laboratorios Indas in Nov 2013 to expand its personal care business in Europe.

The solid fundamentals find confirmation in positive estimate changes, driving the Zacks Consensus Estimate higher both for the current quarter as well as for the full year. The Zacks Consensus Estimates for the ongoing quarter and full year are currently at $1.99 and $9.51, respectively, both representing more than a two-fold year-over-year growth.

Other Stocks to Consider

Other stocks to watch out for in the industry include Stora Enso Oyj (SEOAY), Fibria Celulose SA FBR and Neenah Paper, Inc. NP. While Stora has a Zacks Rank #1 (Strong Buy), both Fibria and Neenah hold a Zacks Rank #2 (Buy).