We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Here's Why You Must Retain Louisiana-Pacific (LPX) Stock Now
Read MoreHide Full Article
Louisiana-Pacific Corporation (LPX - Free Report) , or LP, is benefiting from the focus on the Siding business, strategic business transformation initiatives, and enhancing shareholders’ returns.
Shares of this American building materials manufacturer gained 23.7% in the year-to-date period, outperforming the Zacks Building Products – Wood industry’s 9.3% decline, the Zacks Construction sector’s 10% growth, and the S&P 500 Index’s 17% rise.
Image Source: Zacks Investment Research
Notably, the company’s trailing 12-month Return on Equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 20.9%, which is higher than the industry’s 15.8%, reflecting efficient usage of shareholders’ funds.
Besides the aforementioned tailwinds, this Zacks Rank #3 (Hold) company’s prospects are threatened by fluctuating Oriented Strand Board (OSB) prices, macro-headwinds, and increased costs and expenses.
The Zacks Consensus Estimate for the company's second-quarter and 2024 earnings per share (EPS) has trended downward to $1.88 from $2.02, and $5.31 from $5.79, respectively, in the past seven days.
Although the estimated figures have moved south, they indicate 241.8% and 64.9% growth, respectively, from the prior year’s reported levels. LPX delivered a trailing four-quarter earnings surprise of 18.6%, on average.
What’s Driving LPX’s Growth?
Siding Business Bode Well: Louisiana-Pacific has been making efforts to increase the penetration of Siding products in repair/remodel and roll out SmartSide products, under its Siding business, which accounted for 49.9% of sales in the first quarter of 2024. The efforts include exiting from the fiber product line to focus more on higher-margin SmartSide strand products and launching ExpertFinish within the Prefinish product line.
Under this segment, the company launched a few new products including Brushed Smooth, Trim and Siding, Pebbled Stucco Panels, and Nickel Gap. The inclusion of these products into the product portfolio will be advantageous for the ongoing price mix uplift of ExpertFinish and help drive growth in new residential construction, and Repair & Remodel. Furthermore, the company’s initiatives of expanding Siding capacity and opening new facilities are increasing its abilities to cater to the increasing demand and reach new markets.
Business Transitioning Initiatives: Louisiana-Pacific is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and EBITDA mix. It is focused on improving business by growing the Siding unit and simultaneously reducing costs. The primary focus areas include increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness, or OEE, initiatives; applying best practices to its supply chain and optimizing infrastructure costs.
The adjusted EBITDA in first-quarter 2024 increased 175.8% year over year to $182 million, with the adjusted EBITDA margin expanding 470 basis points in the same time frame. Furthermore, these improvements induce confidence in the company to achieve its long-term adjusted EBITDA margin target of 25%.
Rewarding Shareholders: The company has been consistently enhancing shareholders’ returns through share repurchases and dividends. On Feb 9, 2024, it hiked quarterly cash dividends by 8.3% to 26 cents per share. The company has committed to returning over time to its shareholders at least 50% of cash flow from operations more than capital expenditures to sustain the core business, as well as grow Siding and value-added OSB.
During the first quarter of 2024, the company’s board of directors authorized an additional $250 million to repurchase its common stock, thereby bringing the total authorization for stock repurchases to $400 million. Furthermore, in the first quarter, Louisiana-Pacific paid a total of $19 million in cash dividends.
Valuation
Louisiana-Pacific seems a bit undervalued compared with its industry average. The price-to-earnings (P/E) ratio is one of the most commonly used valuation ratios and is best suited for evaluating companies offering building materials. Currently, the company’s forward 12-month P/E ratio of 16.91X is notably below the industry average of 21.55X. The undervaluation of the stock makes it potentially attractive to investors.
Image Source: Zacks Investment Research
What is Hindering the Stock's Growth?
Softening OSB Prices: Louisiana-Pacific has a high degree of product concentration in OSB, which accounted for 43.2% of sales in the first quarter. Any fluctuations in the prices of OSB will directly impact the top-line growth of the company. The possibility of OSB prices moving downward after soaring till April 2024 is likely to induce concerns regarding the growth trend of LPX. Alongside unfavorable pricing, a slowdown in housing demand and supply risks will collectively impact the demand for OSB, thus negatively impacting the top-line growth of the company for the rest of 2024.
Increasing Costs & Expenses: Louisiana-Pacific’s increasing marketing investments associated with accelerating repair and remodel channel penetration, along with new product introductions, have been putting pressure on its performance over the last few quarters. During the first quarter, the cost of sales and selling, general, and administrative expenses increased year over year to $511 million from $483 million, and $69 million from $66 million, respectively. The rise in the costs and expenses was driven by higher employee compensation and shipping costs.
Going forward, given the ongoing inflationary trend, the input cost volatility around fiber, resin, labor, energy, freight, and others is expected to hurt the margins of the company.
Key Picks
Here are some better-ranked stocks from the same sector.
WMS delivered a trailing four-quarter earnings surprise of 30.5%, on average. The stock has risen 44.3% in the past year. The Zacks Consensus Estimate for WMS’ fiscal 2025 sales and EPS indicates growth of 5.1% and 12.2%, respectively, from the prior-year reported levels.
Arcosa, Inc. (ACA - Free Report) currently sports a Zacks Rank of 1. It has a trailing four-quarter earnings surprise of 43.9%, on average. Shares of ACA have gained 20.4% in the past year.
The consensus estimate for ACA’s 2024 sales and EPS implies increases of 15.2% and 10.8%, respectively, from the prior-year reported levels.
Fluor Corporation (FLR - Free Report) presently carries a Zacks Rank #2 (Buy). FLR delivered a trailing four-quarter earnings surprise of 51.3%, on average. The stock has surged 64.2% in the past year.
The Zacks Consensus Estimate for FLR’s 2024 sales and EPS indicates increases of 14.3% and 5.5%, respectively, from a year ago.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Here's Why You Must Retain Louisiana-Pacific (LPX) Stock Now
Louisiana-Pacific Corporation (LPX - Free Report) , or LP, is benefiting from the focus on the Siding business, strategic business transformation initiatives, and enhancing shareholders’ returns.
Shares of this American building materials manufacturer gained 23.7% in the year-to-date period, outperforming the Zacks Building Products – Wood industry’s 9.3% decline, the Zacks Construction sector’s 10% growth, and the S&P 500 Index’s 17% rise.
Image Source: Zacks Investment Research
Notably, the company’s trailing 12-month Return on Equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 20.9%, which is higher than the industry’s 15.8%, reflecting efficient usage of shareholders’ funds.
Besides the aforementioned tailwinds, this Zacks Rank #3 (Hold) company’s prospects are threatened by fluctuating Oriented Strand Board (OSB) prices, macro-headwinds, and increased costs and expenses.
The Zacks Consensus Estimate for the company's second-quarter and 2024 earnings per share (EPS) has trended downward to $1.88 from $2.02, and $5.31 from $5.79, respectively, in the past seven days.
Although the estimated figures have moved south, they indicate 241.8% and 64.9% growth, respectively, from the prior year’s reported levels. LPX delivered a trailing four-quarter earnings surprise of 18.6%, on average.
What’s Driving LPX’s Growth?
Siding Business Bode Well: Louisiana-Pacific has been making efforts to increase the penetration of Siding products in repair/remodel and roll out SmartSide products, under its Siding business, which accounted for 49.9% of sales in the first quarter of 2024. The efforts include exiting from the fiber product line to focus more on higher-margin SmartSide strand products and launching ExpertFinish within the Prefinish product line.
Under this segment, the company launched a few new products including Brushed Smooth, Trim and Siding, Pebbled Stucco Panels, and Nickel Gap. The inclusion of these products into the product portfolio will be advantageous for the ongoing price mix uplift of ExpertFinish and help drive growth in new residential construction, and Repair & Remodel. Furthermore, the company’s initiatives of expanding Siding capacity and opening new facilities are increasing its abilities to cater to the increasing demand and reach new markets.
Business Transitioning Initiatives: Louisiana-Pacific is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and EBITDA mix. It is focused on improving business by growing the Siding unit and simultaneously reducing costs. The primary focus areas include increasing the efficiency of mills by improving productivity, run time and quality through overall equipment effectiveness, or OEE, initiatives; applying best practices to its supply chain and optimizing infrastructure costs.
The adjusted EBITDA in first-quarter 2024 increased 175.8% year over year to $182 million, with the adjusted EBITDA margin expanding 470 basis points in the same time frame. Furthermore, these improvements induce confidence in the company to achieve its long-term adjusted EBITDA margin target of 25%.
Rewarding Shareholders: The company has been consistently enhancing shareholders’ returns through share repurchases and dividends. On Feb 9, 2024, it hiked quarterly cash dividends by 8.3% to 26 cents per share. The company has committed to returning over time to its shareholders at least 50% of cash flow from operations more than capital expenditures to sustain the core business, as well as grow Siding and value-added OSB.
During the first quarter of 2024, the company’s board of directors authorized an additional $250 million to repurchase its common stock, thereby bringing the total authorization for stock repurchases to $400 million. Furthermore, in the first quarter, Louisiana-Pacific paid a total of $19 million in cash dividends.
Valuation
Louisiana-Pacific seems a bit undervalued compared with its industry average. The price-to-earnings (P/E) ratio is one of the most commonly used valuation ratios and is best suited for evaluating companies offering building materials. Currently, the company’s forward 12-month P/E ratio of 16.91X is notably below the industry average of 21.55X. The undervaluation of the stock makes it potentially attractive to investors.
Image Source: Zacks Investment Research
What is Hindering the Stock's Growth?
Softening OSB Prices: Louisiana-Pacific has a high degree of product concentration in OSB, which accounted for 43.2% of sales in the first quarter. Any fluctuations in the prices of OSB will directly impact the top-line growth of the company. The possibility of OSB prices moving downward after soaring till April 2024 is likely to induce concerns regarding the growth trend of LPX. Alongside unfavorable pricing, a slowdown in housing demand and supply risks will collectively impact the demand for OSB, thus negatively impacting the top-line growth of the company for the rest of 2024.
Increasing Costs & Expenses: Louisiana-Pacific’s increasing marketing investments associated with accelerating repair and remodel channel penetration, along with new product introductions, have been putting pressure on its performance over the last few quarters. During the first quarter, the cost of sales and selling, general, and administrative expenses increased year over year to $511 million from $483 million, and $69 million from $66 million, respectively. The rise in the costs and expenses was driven by higher employee compensation and shipping costs.
Going forward, given the ongoing inflationary trend, the input cost volatility around fiber, resin, labor, energy, freight, and others is expected to hurt the margins of the company.
Key Picks
Here are some better-ranked stocks from the same sector.
Advanced Drainage Systems, Inc. (WMS - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WMS delivered a trailing four-quarter earnings surprise of 30.5%, on average. The stock has risen 44.3% in the past year. The Zacks Consensus Estimate for WMS’ fiscal 2025 sales and EPS indicates growth of 5.1% and 12.2%, respectively, from the prior-year reported levels.
Arcosa, Inc. (ACA - Free Report) currently sports a Zacks Rank of 1. It has a trailing four-quarter earnings surprise of 43.9%, on average. Shares of ACA have gained 20.4% in the past year.
The consensus estimate for ACA’s 2024 sales and EPS implies increases of 15.2% and 10.8%, respectively, from the prior-year reported levels.
Fluor Corporation (FLR - Free Report) presently carries a Zacks Rank #2 (Buy). FLR delivered a trailing four-quarter earnings surprise of 51.3%, on average. The stock has surged 64.2% in the past year.
The Zacks Consensus Estimate for FLR’s 2024 sales and EPS indicates increases of 14.3% and 5.5%, respectively, from a year ago.