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Louisiana-Pacific Stock Gains 30% in 6 Months: Time to Hold or Fold?
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Louisiana-Pacific Corporation (LPX - Free Report) , or LP, an American building materials manufacturer, has rallied 30.1% in the past six months, outperforming the Zacks Building Products - Wood industry, the Zacks Construction sector and the S&P 500 Index. During the same time frame, the industry declined 10.1% while the sector and the S&P 500 Index grew 6.8% and 9.3%, respectively.
Image Source: Zacks Investment Research
The company is gaining from growth in new residential construction, a notable rise in repair and remodeling demand and favorable pricing, resulting in solid volume growth in its Siding business. Also, effective cost-control initiatives and capital allocation strategies bode well.
In the context of the other industry players, including UFP Industries, Inc. (UFPI - Free Report) , Boise Cascade Company (BCC - Free Report) and Weyerhaeuser Company (WY - Free Report) , LPX has notably outperformed them all in the past six months. In the said time frame, shares of UFPI have gained 4.1%, while WY and BCC lost 12.6% and 2.8%, respectively.
Factors Guiding LPX Stock Upward
Siding Business Poised Well: Louisiana-Pacific’s Siding business is gaining from favorable pricing initiatives and a notable increase in repair and remodeling demand. The current market backdrop of improving new residential construction is driving the business. Also, the introduction of new products into LPX’s portfolio, including Brushed Smooth, Trim and Siding, Pebbled Stucco Panels and Nickel Gap, to name a few, has been benefiting this business as well.
Under the Siding business, volume growth in ExpertFinish has been encouraging for the company’s growth trends. The launch of the pre-finishing facility in Bath, NY, and the conversion of the Sagola mill from oriented strand board (“OSB”) to Siding has laid the foundation for improved ExpertFinish margins in 2024 compared to last year. LPX expects ExpertFinish to be approximately 10% of total siding volume and about 14% of siding revenues in 2024.
Focus on Cost Control: LPX is effectively balancing between expanding its business prospects and reducing the cost structure. To counter the ongoing inflated market scenario, the company has been executing cost-control and other operational strategies to expand its margins. Moreover, it is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and earnings before interest, tax, depreciation and amortization (EBITDA) mix.
Louisiana-Pacific’s adjusted EBITDA in the first six months of 2024 surged 158.5% year over year to $411 million. During the same time frame, the adjusted EBITDA margin expanded by a whopping 1,340 basis points to 26.7% compared to last year. The uptrend was backed by higher OSB selling prices and sales volume, and higher Siding net sales. Also, the decrease in freight, raw materials and labor costs in the Siding business was a positive. Owing to the improving trend, for 2024, LP now expects adjusted EBITDA to be between $580 million and $620 million, up from the prior year’s reported value of $478 million.
Effective Capital Allocation: Apart from business enhancements, Louisiana-Pacific also focuses on an exceptional capital allocation strategy. LPX allocates its capital in capital expenditures, share repurchases and dividend payments, reflecting its focus in expanding its business as well as maintaining shareholder value. This effective strategy will indeed support the company’s growth prospects in the near and long term.
As far as capital expenditures are concerned, after undertaking various expansion projects in the past two years, with new facilities fully operational currently, LPX aims to lower its capital investments for 2024. However, investing in business expansion opportunities remains one of its priorities. Coming to shareholder value, in the first six months of 2024, the company used $115 million to repurchase shares of its common stock under the 2022 Share Repurchase Program. Also, it paid cash dividends of $37 million and used $5 million to repurchase stock from employees in connection with income tax withholding requirements associated with employee stock-based compensation plans.
LPX Trading Above 50 & 200-Day Moving Average
Technical indicators suggest continued strong performance for Louisiana-Pacific. From the graphical representation given below, it can be observed that LPX stock is riding above its 50-day simple moving average (SMA) and 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in LPX’s financial health and prospects.
50 & 200-day SMA
Image Source: Zacks Investment Research
LPX Trading at a Discount
Louisiana-Pacific is valued at a discount at the moment compared with its industry on a forward 12-month price-to-earnings (P/E) ratio basis. LPX’s forward 12-month P/E ratio is 19.93, lower than the industry’s ratio of 23.75. This indicates that despite the stock price increase in the past six months, it remains an attractive option for investors looking for a discounted entry point.
Image Source: Zacks Investment Research
Can LPX Continue to Maintain the Rhythm?
Increasing Costs & Expenses: Although Louisiana-Pacific is gaining from its rigorous cost control initiatives, the continuous cost pressure due to the current market scenario is taking a toll on its resolution.
Thanks to its strategies, a decrease in freight, raw materials and labor costs under its Siding business is benefiting LPX. However, the increase in mill overhead costs across its Siding and OSB businesses and unfavorable currency fluctuations in LP South America business have been partially putting pressure on the margins. Also, an upsurge in selling, general, and administrative (SG&A) expenses due to higher employee compensation is concerning. During the first half of 2024, SG&A expenses increased 5.3% year over year to $140 million.
Market Uncertainties: As the primary source of income for LPX depends on the housing market, any uncertainty can adversely impact its near-term as well as long-term prospects. Scenarios comprising a pullback in new residential construction, increased interest rates, reduced consumer confidence and uncertainty in the repair and remodel business accompanied by other macroeconomic uncertainties can heavily impact its end markets and compromise profitability.
Estimates for LPX Move Down
The Zacks Consensus Estimate for Louisiana-Pacific’s 2024 earnings per share (EPS) has declined to $5.05 from $5.79 over the past 60 days. Over the said time frame, the consensus estimate for third-quarter 2024 EPS has declined to 88 cents from $1.12, indicating a 45.7% year-over-year decline.
EPS Estimate Trend
Image Source: Zacks Investment Research
Include LPX in Your Portfolio – Yay or Nay?
Per the above discussion, it can be concluded that LPX is benefiting from the improving trends in new residential construction, prospects for repair and remodel business and pricing strategies. Moreover, the capacity expansion projects undertaken for its Siding business have turned out to be profitable for the firm. Also, favorable cost-control initiatives bode well for the company.
Furthermore, Louisiana-Pacific’s capital allocation strategy is quite appealing to investors as apart from investing in business expenditures, it helps to maintain shareholder value through share repurchases and regular dividend payments. Its trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 27.1%, higher than the industry’s 14.3%. This reflects the company’s efficient usage of shareholders’ funds.
By trading at a discount and riding above its 50 and 200-day moving average, LPX stock is inducing bullish sentiments among investors. However, a declining estimate trend is indicating otherwise, given the ongoing macroeconomic challenges, cost pressure and unfavorable currency fluctuations. Based on the overall discussion and the trends of technical indicators, existing investors are advised to hold this Zacks Rank #3 (Hold) company shares for now, whereas new investors might want to wait for a more favorable entry point.
Image: Bigstock
Louisiana-Pacific Stock Gains 30% in 6 Months: Time to Hold or Fold?
Louisiana-Pacific Corporation (LPX - Free Report) , or LP, an American building materials manufacturer, has rallied 30.1% in the past six months, outperforming the Zacks Building Products - Wood industry, the Zacks Construction sector and the S&P 500 Index. During the same time frame, the industry declined 10.1% while the sector and the S&P 500 Index grew 6.8% and 9.3%, respectively.
Image Source: Zacks Investment Research
The company is gaining from growth in new residential construction, a notable rise in repair and remodeling demand and favorable pricing, resulting in solid volume growth in its Siding business. Also, effective cost-control initiatives and capital allocation strategies bode well.
In the context of the other industry players, including UFP Industries, Inc. (UFPI - Free Report) , Boise Cascade Company (BCC - Free Report) and Weyerhaeuser Company (WY - Free Report) , LPX has notably outperformed them all in the past six months. In the said time frame, shares of UFPI have gained 4.1%, while WY and BCC lost 12.6% and 2.8%, respectively.
Factors Guiding LPX Stock Upward
Siding Business Poised Well: Louisiana-Pacific’s Siding business is gaining from favorable pricing initiatives and a notable increase in repair and remodeling demand. The current market backdrop of improving new residential construction is driving the business. Also, the introduction of new products into LPX’s portfolio, including Brushed Smooth, Trim and Siding, Pebbled Stucco Panels and Nickel Gap, to name a few, has been benefiting this business as well.
Under the Siding business, volume growth in ExpertFinish has been encouraging for the company’s growth trends. The launch of the pre-finishing facility in Bath, NY, and the conversion of the Sagola mill from oriented strand board (“OSB”) to Siding has laid the foundation for improved ExpertFinish margins in 2024 compared to last year. LPX expects ExpertFinish to be approximately 10% of total siding volume and about 14% of siding revenues in 2024.
Focus on Cost Control: LPX is effectively balancing between expanding its business prospects and reducing the cost structure. To counter the ongoing inflated market scenario, the company has been executing cost-control and other operational strategies to expand its margins. Moreover, it is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and earnings before interest, tax, depreciation and amortization (EBITDA) mix.
Louisiana-Pacific’s adjusted EBITDA in the first six months of 2024 surged 158.5% year over year to $411 million. During the same time frame, the adjusted EBITDA margin expanded by a whopping 1,340 basis points to 26.7% compared to last year. The uptrend was backed by higher OSB selling prices and sales volume, and higher Siding net sales. Also, the decrease in freight, raw materials and labor costs in the Siding business was a positive. Owing to the improving trend, for 2024, LP now expects adjusted EBITDA to be between $580 million and $620 million, up from the prior year’s reported value of $478 million.
Effective Capital Allocation: Apart from business enhancements, Louisiana-Pacific also focuses on an exceptional capital allocation strategy. LPX allocates its capital in capital expenditures, share repurchases and dividend payments, reflecting its focus in expanding its business as well as maintaining shareholder value. This effective strategy will indeed support the company’s growth prospects in the near and long term.
As far as capital expenditures are concerned, after undertaking various expansion projects in the past two years, with new facilities fully operational currently, LPX aims to lower its capital investments for 2024. However, investing in business expansion opportunities remains one of its priorities. Coming to shareholder value, in the first six months of 2024, the company used $115 million to repurchase shares of its common stock under the 2022 Share Repurchase Program. Also, it paid cash dividends of $37 million and used $5 million to repurchase stock from employees in connection with income tax withholding requirements associated with employee stock-based compensation plans.
LPX Trading Above 50 & 200-Day Moving Average
Technical indicators suggest continued strong performance for Louisiana-Pacific. From the graphical representation given below, it can be observed that LPX stock is riding above its 50-day simple moving average (SMA) and 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in LPX’s financial health and prospects.
50 & 200-day SMA
Image Source: Zacks Investment Research
LPX Trading at a Discount
Louisiana-Pacific is valued at a discount at the moment compared with its industry on a forward 12-month price-to-earnings (P/E) ratio basis. LPX’s forward 12-month P/E ratio is 19.93, lower than the industry’s ratio of 23.75. This indicates that despite the stock price increase in the past six months, it remains an attractive option for investors looking for a discounted entry point.
Image Source: Zacks Investment Research
Can LPX Continue to Maintain the Rhythm?
Increasing Costs & Expenses: Although Louisiana-Pacific is gaining from its rigorous cost control initiatives, the continuous cost pressure due to the current market scenario is taking a toll on its resolution.
Thanks to its strategies, a decrease in freight, raw materials and labor costs under its Siding business is benefiting LPX. However, the increase in mill overhead costs across its Siding and OSB businesses and unfavorable currency fluctuations in LP South America business have been partially putting pressure on the margins. Also, an upsurge in selling, general, and administrative (SG&A) expenses due to higher employee compensation is concerning. During the first half of 2024, SG&A expenses increased 5.3% year over year to $140 million.
Market Uncertainties: As the primary source of income for LPX depends on the housing market, any uncertainty can adversely impact its near-term as well as long-term prospects. Scenarios comprising a pullback in new residential construction, increased interest rates, reduced consumer confidence and uncertainty in the repair and remodel business accompanied by other macroeconomic uncertainties can heavily impact its end markets and compromise profitability.
Estimates for LPX Move Down
The Zacks Consensus Estimate for Louisiana-Pacific’s 2024 earnings per share (EPS) has declined to $5.05 from $5.79 over the past 60 days. Over the said time frame, the consensus estimate for third-quarter 2024 EPS has declined to 88 cents from $1.12, indicating a 45.7% year-over-year decline.
EPS Estimate Trend
Image Source: Zacks Investment Research
Include LPX in Your Portfolio – Yay or Nay?
Per the above discussion, it can be concluded that LPX is benefiting from the improving trends in new residential construction, prospects for repair and remodel business and pricing strategies. Moreover, the capacity expansion projects undertaken for its Siding business have turned out to be profitable for the firm. Also, favorable cost-control initiatives bode well for the company.
Furthermore, Louisiana-Pacific’s capital allocation strategy is quite appealing to investors as apart from investing in business expenditures, it helps to maintain shareholder value through share repurchases and regular dividend payments. Its trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 27.1%, higher than the industry’s 14.3%. This reflects the company’s efficient usage of shareholders’ funds.
By trading at a discount and riding above its 50 and 200-day moving average, LPX stock is inducing bullish sentiments among investors. However, a declining estimate trend is indicating otherwise, given the ongoing macroeconomic challenges, cost pressure and unfavorable currency fluctuations. Based on the overall discussion and the trends of technical indicators, existing investors are advised to hold this Zacks Rank #3 (Hold) company shares for now, whereas new investors might want to wait for a more favorable entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.