Loonie Decline Leads To Lower Costs For Louisiana-Pacific

• Louisiana-Pacific Corporation LPX shares have been rangebound, and are down 4 percent year-to-date.
• RBC Capital Markets’ Paul C. Quinn upgraded the rating for the company from Sector Perform to Outperform, while raising the price target from $16 to $19.
• While tighter market conditions are expected to support a price rally, Quinn believes that the company’s stock is under pressure due to an overly conservative outlook.

Analyst Paul Quinn believes that OSB prices are “likely to go anywhere but down,” after having declined to cash cost levels earlier this year. “We believe the market is tightening (mainly due to higher demand), which should support a continued price rally in the medium to long term,” he wrote.

Quinn expects a $10 increase in North Central OSB prices to boost Louisiana-Pacific’s EBITDA by $45 million. At the same time, a steep decline in the Canadian Dollar has resulted in lower costs for the company’s Canadian operations. Louisiana-Pacific had indicated that a $0.01 decline in the Loonie contributes $2 million in its EBITDA.

Markets are looking “tighter,” Quinn said, citing the “pushback of some capacity adds” into late 2016 and 2017. Moreover, some OSB mills may move out of the North American market. “We expect NA OSB operating rates to average 93% in 2016 and 94% in 2017,” the RBC Capital Markets report stated.