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Why You Should Buy Louisiana-Pacific (LPX) Stock Right Now

Zacks

There’s no denying that the proposed steel and aluminum tariffs, announced by the President Trump last week, are expected to raise construction costs. Nonetheless, overlooking the sector will not be prudent as the overall outlook for the construction industry remains positive with a healthy economy and strong job market that will continue to drive stocks higher. There are a number of companies with decent performance history and strong fundamentals, signaling at a profitable investment opportunity.

Louisiana-Pacific Corporation LPX is one such company that continues to show strength in several areas. Adding the stock to your portfolio should not be a disappointment.

Shares of Louisiana-Pacific have gained 4.8% in the last three months against the industry’s decline of 2%. Earnings estimates for the company have exhibited an uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s current-year earnings has moved up 24.5% over the last 30 days.

Let us delve deeper into the other factors which make this Zacks Rank #1 (Strong Buy) stock a lucrative pick. You can see the complete list of today’s Zacks #1 Rank stocks here.


What Makes Louisiana-Pacific a Solid Bet?

Stellar Performance & Upbeat Outlook

The leading manufacturer of quality engineered wood building products has been expanding its product range to accommodate all consumers’ demand and thereby driving the top line. In fact, the company ended 2017 on an impressive note. The company reported adjusted earnings per share of 73 cents in fourth-quarter 2017, improving considerably from the year-ago quarter’s figure of 23 cents. Net sales of $711 million in the quarter also increased 29% year over year. Adjusted EBITDA from continuing operations was $199 million in the quarter, up 134.1% from $85 million in the prior-year quarter.

Overall, 2017 was marked as the company’s strongest year since 2005, supported by double-digit growth across all of its business segments, and the company expects housing demand to remain strong in 2018. Precisely, with the Siding segment becoming a more meaningful contributor to earnings, coupled with reinstatement of the dividend, we believe Louisiana-Pacific makes an impressive investment choice for both near-term and long-term growth.

The Siding segment continued to show strong momentum, with operating profit growth of 48% in 2017. Adjusted EBITDA was up an impressive 42% with 10% volume gains in both the Smart Side and CanExel products, partially increased by higher Oriented Strand Board or OSB contribution from residual Siding mill production.

The company remains positive about the overall homebuilding market in 2018 too, banking on solid demand for homes, favorable job market and solid economy that are expected to continue propelling the housing market forward.

Louisiana-Pacific has put up a historical (three-five year) EPS growth rate of 10.3%, higher than the industry average. The company’s fiscal 2018 earnings are expected to grow 11.3%. The above-mentioned tailwinds have made it a great pick in terms of Growth investment. The stock has a Growth Score of A.

Solid VGM Score and ROE

The company has an impressive VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 (Buy), make solid investment choices.

Louisiana-Pacific’s trailing 12-month return on equity (ROE) supports its growth potential. ROE in the trailing 12 months is 24.1%, while the industry gained 12.1%, reflecting the company’s efficient usage of shareholders’ funds.

Valuation Looks Rational

We find the price-to-book ratio as the best multiple for valuing construction companies because of their asset-driven nature. Louisiana-Pacific currently has a trailing 12-month P/B ratio of 2.5, comparing favorably with the industry’s P/B ratio of 3. Hence, its lower-than-market positioning hints at more upside in the quarters ahead.

Meanwhile, the company currently has a trailing 12-month Price-to-Earnings or P/E ratio of 12. This is quite cheap compared with the industry as well as the market at large, as the current P/E for the industry and S&P 500 is at 23.3 and 21.1, respectively.

Again, the company’s trailing 12-month Price-to-Sales or P/S ratio of 1.5 is lower than the industry’s 3.3x as well as S&P 500’s 3.4x.

Return on Equity

Louisiana-Pacific’s trailing 12-month return on equity (ROE) supports growth potential. ROE in the trailing 12 months is 24.1%, higher than the industry average of 12.1%. This reflects the company’s efficient usage of shareholders’ funds.

Other Stocks to Consider

Other top-ranked stocks worth considering in the same space are Boise Cascade Company BCC, PotlatchDeltic Corporation PCH and Trex Company, Inc. TREX.

Boise Cascade sports a Zacks Rank #1 and is likely to witness a rise of 36.7% in earnings for the current year.

PotlatchDeltic, also a Zacks Rank #1 stock, is expected to witness 26.3% growth in earnings this year.

Trex, a Zacks Rank #2 stock, is expected to witness 29.4% growth in 2018 earnings.

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