UPDATE: J.P. Morgan Downgrades Domtar Corp. to Neutral, Lowers PT on Continuing Volume Decline

In a report published Friday, J.P. Morgan analyst Phil Gresh downgraded the rating on Domtar Corp.

from Overweight to Neutral, and lowered the price target from $95.00 to $78.00. In the report, Gresh noted, “We see UFS's core UCFS markets (~80% of normalized EBITDA) remaining in secular volume decline, which has recently caused some margin erosion across the industry. On pulp (~15% of normalized EBITDA), pricing has bounced off the bottom but could be in a holding pattern in 2H12 as new capacity comes online. With an assumed continuation of operational issues and input cost headwinds from 1Q13 and little upside seen in paper pricing/margins, we see few positive fundamental catalysts in the near-term. FCF generation potential is strong, with a yield of ~14% on 2014E, and we expect capital allocation to be a positive going forward (~70% of FCF returned to shareholders). However, at these levels, valuation is not enticing enough for us to recommend shares.” Domtar Corp. closed on Thursday at $68.40.