Goldman Neutral On Paper/Forest Products: Prefers Boise Cascade, Weyerhauser

In a research note released Thursday, Goldman Sachs initiated coverage of U.S. Paper & Forest Products sector with a Neutral coverage view and touted Boise Cascade Co BCC and Weyerhaeuser Co WY as its preferred stocks.

The firm's coverage universe in the sector includes:

  • Weyerhaeuser: Buy; $37 price target suggesting 22 percent upside.
  • Boise Cascade: Buy; $34 price target, suggesting 38 percent upside.
  • International Paper Co IP: Neutral; $49 price target, suggesting 1 percent upside.
  • WestRock Co WRK: Neutral; $53 price target, suggesting 10 percent upside.
  • Packaging Corp Of America PKG: Sell; $77 price target, suggesting 6 percent downside.
  • Domtar Corp (USA) UFS: Neutral; $40 price target, suggesting 9 percent upside.
  • Enviva Partners LP EVA: Neutral; $28 price target, suggesting 6 percent upside.

Subsectors And Prospects

Dividing the sector into seven product-focused subsectors, Goldman said it is Positive on timberlands, where Weyerhaeuser is active; wood products, where Boise Cascade and Weyerhaeuser has presence; and wood pellets, where Enviva is profiled. However, the firm is Negative on pulp, a key area for Domtar and International Paper. It is Neutral to negative on containerboard, where International Paper, Packaging Corp and WestRock are all operational.

Related Link: Strong Housing Starts And Chinese Demand Bode Well For Weyerhaeuser

The Positive view on timberlands is premised on its land value appreciation and on wawlogs potential for a supercycle. Goldman prefers wood products subsector for its lumber & panels' leverage to housing recovery. Wood pellets are deemed positive due to market growth to meet EU renewable energy regulations.

However, Goldman is Negative on pulp due to oversupply concerns. The muted opinion on container board is due to supply-demand, export price spread and pricing expectations. Thus, Goldman noted that the sector is not only a cyclical group but also not a homogeneous group.

If industrial production improves, the firm sees containerboard stocks such as International Paper, Packaging Corp and WestRock benefiting from it. Housing strength, according to the firm, could support Boise Cascade and Weyerhaeuser. That said, the firm now prefers stocks with housing exposure. Goldman also recommended owning Enviva and Domtar if relative value is appealing, as they have secular trends moving in opposite directions.

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Posted In: forest productsGoldman SachsPaper ProductspulpTimberlandswood pelletswood productsAnalyst ColorLong IdeasShort IdeasCommoditiesInitiationMarketsAnalyst RatingsTrading Ideas

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