Louisiana-Pacific Now A 'Top Pick,' Proclaims RBC

• Louisiana-Pacific Corporation LPX shares have been highly volatile in 2015 and are up 17 percent since October 5.
• RBC Capital Markets’ Paul C. Quinn upgraded the rating on the company from Outperform to Top Pick, while raising the price target from $20 to $22.
• The rally in OSB prices is expected to boost the performance of the company’s main segment, Quinn noted.

Louisiana-Pacific reported its 3Q15 results short of expectations. The company reported adjusted EBITDA of $11 million and normalized EPS of ($0.12), with the miss attributable to lower EBITDA in OSB and Siding.

Analyst Paul Quinn mentioned that while 3Q OSB benchmark prices were up 3.6 percent q/q, realizations were up merely 2 percent. This demonstrates the significant price lag and indicates that the pricing momentum in Louisiana-Pacific’s main segment will boost the company’s stock.

The company attributed the OSB price gains to poor weather conditions constraining supply and the inventory drawdown in 1H15. Louisiana-Pacific believes that the rally could continue into 2016, with the help of a mild fall.

Louisiana-Pacific mentioned that the deterioration in Siding’s performance was not because of loss of competitiveness, rather by a significant decline in orders from pre-finishers having high levels of inventory. The company added that these losses were partially offset by higher pricing and lower manufacturing costs.

Louisiana-Pacific forecasted 1.2-1.25 million US housing starts in 2016, versus consensus and RBC estimates of 1.3 million.

“We see the recent rally in OSB prices continuing through 2016, and this combined with a supportive outlook for LP's siding business will support a climb in LPX shares,” Quinn wrote.