Analyst: 'Don't Stand In The Way' Of Louisiana-Pacific

RBC upgraded Louisiana-Pacific Corporation LPX Monday from Underperform to Sector Perform and set a $15 price target.

Analysts led by Paul C. Quinn noted that OSB prices appeared to have bottomed and that prices could rally with seasonally stronger demand.

Quinn still had “trouble getting constructive on the story as valuation" seemed lofty and it was expected that further downward revisions to Street estimates could be ahead.

“North Central OSB prices were unchanged w/w on April 10 at $180/msf, while South East pricing weakened 0.6 percent to $167 and Western Canada fell 2.0 percent to $147. With current prices currently at or below cash cost levels for most producers, we see limited downside risk,” Quinn commented.

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The analyst noted cited challenging weather conditions in the Eastern United States and South which depressed demand in Q1 2015, “while supply continued to overwhelm the market as no producer was willing to indefinitely idle a mill (opting for reduced shifts instead).”

OSB prices and stocks, however, could rally in the view of the analysts as U.S. housing starts increase 10 percent in 2015 and 11 percent in 2016 to 1.2 million.

“We expect improving weather conditions to drive a material pick-up soon in residential construction activity levels in the United States. With limited inventory in the channel, this should support upward momentum in OSB prices,” according to Quinn.

Quinn felt that sell-side analysts were too optimistic on the company and that there were “more attractive risk/reward opportunities in other wood product names at current levels,” with LPX trading at 7.6x 2016E EV/EBITDA.

Regardless of valuation, Quinn concluded, "Don't stand in the way of the OSB train when it starts moving."

Louisiana-Pacific Corporation closed at $16.29 Monday, up 0.93 percent.