I’d previously written in reference to Louisiana-Pacific (LPX)
that I regarded a decline in OSB pricing as a “when, not if” scenario,
but I can’t say I was expecting the price to fall roughly 60% from its
peak in only about six months. Between new capacity coming online and
disappointing momentum in residential construction, though, the
operating outlook has deteriorated sharply and taken the share price of
LP, Weyerhaeuser (WY), and Norbord (OSB) with it.
Prices
went too high in the good times and I believe they’ve overcorrected,
but there are a lot of moving parts to the Louisiana-Pacific story, and
volatility is likely to remain above-average. I believe the shares are
trading too cheaply now on the basis of “full cycle” EBITDA and
long-term discounted cash flow, and I believe the market is undervaluing
the long-term potential of the siding business, but the undervaluation I
see here comes with the asterisk that near-term conditions (and the
share price) could still get worse before they get better.
Read more here:
Revisiting Louisiana-Pacific After A Sharp Correction In OSB Prices
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