After Louisiana-Pacific’s Downgrade - What’s next in the Building and Construction Products Industry?

Published Date : Dec 09, 2014

Louisiana-Pacific Corporation was downgraded by the DA Davidson research firm last Friday from a status of “Buy” to a “Neutral” rating, i.e. LPX 0%. RBC Capital had struck a similar rating a few days earlier. It changed its rating from ‘Sector Perform’ to ‘Underperform’ - where the price target was set as $13.00 per share. These implications apply a downside potential of 22 percent from the present price (as of December 8) of $16.85 per share. 

The stock’s performance and downgrades this year have together triggered rising interests in the company. The interest ratio stands approximately 2.47 days. 

Despite the downgrades, Louisiana-Pacific Corporation increased by 8.58 percent on Monday. This is because the $667 million Norbord’s deal to buy Ainsworth Lumber comes as an encouragement for the industry’s future. 
Also, as the public spending and private including residential and non-residential spending on the construction industry continues to rise and recuperate, the overall building materials market is anticipated for high growth. 

Moody’s Investors Services report discusses the leverage of the materials industry and the ascending volumes - coupled with higher prices. This aspect is expected to drive the operating income in the industry up by more than seven percent approximately in the next 12 to 18 months. 

Many industry players have witnessed recent downgrades from a couple of Wall Street analysts, but the argument stands tall for a long play.

Weyerhaeuser Co - WY 0% a peer of Louisiana-Pacific currently trades $36.11 per share and has returned around 14.3 percent. Industry analysts expect the figures to climb up to $39.00-$40.00 per share. 

Boise Cascade Co BCC 0% another industry peer to Louisiana-Pacific is also up by 23.2 percent year-to-date.