Seeking Alpha: Louisiana-Pacific Hit With Weak Pricing And Trouble With Regulators

Wood building products manufacturer Louisiana-Pacific (LPX) is having a tough time of it, as residential housing has been in a slow, erratic recovery and competitive OSB supply returns to the market. Making matters worse, regulators have not gone along with the company's contemplated acquisition of Ainsworth (OTCPK:ANSBF). Between poor OSB pricing and worries about the merger going through, Louisiana-Pacific shares have been left behind by other residential housing plays like Headwaters (HW), Stock Building Supply (STCK), and Universal Forest Products (UFPI).

LP still looks undervalued, but it's harder case to make. OSB pricing has shown signs of life and a pickup in residential building should be a "when, not if" question. An inability to close a value-creating deal with Ainsworth would likewise be a meaningful setback. Stripping the Ainsworth deal out, a key part of why I wrote LP as a Top Idea in September, I still believe that fair value for these shares is in the high teens, but it's hard to keep making a call based around patiently waiting for better operating conditions.

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Louisiana-Pacific Hit With Weak Pricing And Trouble With Regulators

Seeking Alpha: Louisiana-Pacific Marking Time Ahead Of Closing Ainsworth

The U.S. housing market may not be back to business as usual, but business has gotten a lot better. A range of companies with exposure to residential building materials, including Headwaters (HW) and Universal Forest Products (UFPI), seen solid demand in recent quarters. Louisiana-Pacific (LPX) is having a little more difficult on the pricing and cost sides of things, but bringing Ainsworth (OTCPK:ANSBF) into the fold in 2014 should be a big help.

Louisiana-Pacific needs to execute better on costs and has to keep the momentum moving forward for products like SmartSide and engineered wood products. Provided that they execute on the opportunities that Ainsworth will bring, and that the U.S. housing recovery doesn't get knocked off stride, I continue to believe that Louisiana-Pacific is undervalued and should trade at $20 or higher.

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Louisiana-Pacific Marking Time Ahead Of Closing Ainsworth

Seeking Alpha: Orchids Paper Products Is Small And Solid, But Not So Cheap

Small, illiquid, and under-followed companies can be above-average alpha generators, as they are often overlooked by analysts and institutional investors or outright disqualified due to their low liquidity and so on. It's not always the case, though, that these small gems are cheap. In the case of Orchids Paper Products (TIS), I believe this is an interesting paper products manufacturer with an opportunity to further diversify its customer base and go up-market. I also believe, though, that despite a lack of sell-side coverage and institutional ownership, it's really not as cheap as I'd hoped it might be.

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Orchids Paper Products Is Small And Solid, But Not So Cheap

Seeking Alpha: Waiting For Glatfelter To Cool Off

I'm generally a fan of "specialty" paper and fiber companies like Rock-Tenn (RKT), Packaging Corp (PKG), and Glatfelter (GLT), as these companies don't tend to be wildly popular with larger investment banks or the financial media and they can often give patient GARP-type investors good bang for the buck. On the other hand, we're not talking about companies that are developing the next blockbuster cancer drug or the next must-have consumer electronic gadget; overpaying for these companies can lead to painful losses as there often isn't nearly the same level of growth to bail out investors.

I am not particularly bullish on Glatfelter's stock right now, but it is due solely to valuation. While this company's management team has been canny in transitioning from declining/shrinking products and end-markets to other high-value opportunities, the shares seem to be richly valued on the basis of discounted cash flow, EBITDA, and ROE. I do not doubt the possibility that Glatfelter could attract an acquisition bid (as rival Buckeye Technologies (BKI) did) and that an acquirer could pay more than the company's independent stand-alone value, but I'd be careful about making a major new commitment to these shares, as I do think there will be a time when investors can buy them at a more reasonable valuation.

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Waiting For Glatfelter To Cool Off.

Seeking Alpha: Improving Housing And A Major Deal Make Louisiana-Pacific Much More Interesting

The housing recovery trade seems to have hit a bit of a snag recently, as even hot trades like Home Depot (HD) and Mohawk (MHK) have cooled a bit recently. With mortgage rates heading higher and new construction activity still not that strong relatively to long-term averages, timber, lumber, and wood products companies have gotten dinged. While I had already been planning to write on Louisiana-Pacific (LPX) and point out that it seemed as though the market was pricing in too much skepticism about the OSB, siding, and engineered wood markets, the company did a deal that only makes the story more interesting.

In buying Canada's Ainsworth Lumber (ANSBF.OB), Louisiana-Pacific is not only adding capacity ahead of increased demand, but it is also improving its sales/margin mix, adding an Asian export business, and perhaps helping to quell fears that the industry will act irresponsibly with respect to capacity restarts/additions. While I'm actually surprised at how undervalued Louisiana-Pacific appears to be, it looks like there could be room here for 20% to 40% appreciation even after the strong positive reaction to the Ainsworth deal.

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Improving Housing And A Major Deal Make Louisiana-Pacific Much More Interesting

Investopedia: Louisiana-Pacific, Like Housing, Coming Back To Life

Residential housing construction is coming back to life. Although progress has been unsteady and comes off of an unsustainably weak base, demand is improving and Louisiana-Pacific (NYSE:LPX) is seeing the benefits. The stock has already roared back from its going-out-of-business-sale price, but these shares could continue to appreciate if Congress can avert the fiscal cliff and if other building material companies remain rational and prudent with their capacities and pricing.

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http://www.investopedia.com/stock-analysis/2012/Louisiana-Pacific-Like-Housing-Coming-Back-To-Life-LPX-WY-PCL-AWI1108.aspx

Investopedia: Packaging Corp Continues To Play A Solid Hand

Containerboard and corrugated packaging is admittedly not the most exciting of market sectors, and it is most definitely a commodity market. But not all commodities are quite the same, and Packaging Corp (NYSE:PKG) has built a solid defensible niche by running low-cost mills and focusing on specialty products and regional customers that companies like International Paper (NYSE:IP) and Rock-Tenn (NYSE:RKT) do not. While Packaging Corp (aka "PCA") is rightly well-respected within the industry for its patient, conservative approach, it's worth wondering if there's enough growth here to really appeal to investors.

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Investopedia: International Paper Wraps Up Temple-Inland

As is so often the case, once again an acquisition target's howls of protest have been soothed by a modest increase in the price of the deal. On Tuesday morning, International Paper (NYSE:IP) announced that it has reached an agreement with Temple-Inland (NYSE:TIN) on a friendly acquisition with a slightly higher price than IP's original bid.

A Small Bump To "Yes"  
International Paper secured the support of Temple-Inland's board by offering $32 a share in cash and the assumption of $600 million in debt - a total deal value of $4.3 billion. At that price, Temple-Inland shareholders are seeing a roughly 30% premium to Friday's close and a trailing EV/EBTIDA valuation of roughly 10 - a slight discount to Rock-Tenn (NYSE:RKT), but a premium to Packaging Corp (NYSE:PKG) and the larger packaging sector.


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http://stocks.investopedia.com/stock-analysis/2011/International-Paper-Wraps-Up-Temple-Inland-IP-TIN-RKT-PKG-MWV-KS-KFT0912.aspx

Investopedia: An Off-The-Board Bidder For Smurfit-Stone

The idea that Smurfit-Stone Container (Nasdaq:SSCC) was not going to stay public for too much longer was not all that controversial. After all, the company was a leading manufacturer of containerboard (#2 in the United States), well positioned relative to virgin fiber resources, and not in possession of a terribly dynamic restructuring-oriented management. Consequently, it would not have been surprising to see a company like Temple-Inland (NYSE:TIN) or Koch Industries' Georgia-Pacific step in and acquire Smurfit to better compete with International Paper (NYSE:IP). 

Well, Rock-Tenn (NYSE:RKT) had other ideas. In what is virtually a merger of equals, Rock-Tenn came in with a cash and stock bid for Smurfit-Stone that creates a rather interesting new company in the space and would seem to offer a compelling match of strengths.

The Deal
Rock-Tenn hopes to acquire Smurfit-Stone in a $3.5 billion bid composed of $17.50 in cash and 0.30605 shares of Rock-Tenn for each share of Smurfit-Stone. That gives Smurfit shareholders a 27% premium to Friday's price. At a bit more than 6 times trailing EBTIDA (annualizing Smurfit's last quarter), the deal premium is lower than what IP paid three years ago for Weyerhauser's (NYSE:WY) containerboard assets, but does not seem radically out of line with typical industry valuations (Rock-Tenn itself trades at 6.4x trailing EBITDA).


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http://stocks.investopedia.com/stock-analysis/2011/An-Off-The-Board-Bidder-For-Smurfit-Stone-RKT-SSCC-IP-PKG-TIN-KFT-PEP0126.aspx