Even with mortgage rates on the rise, strong demand from first-time Millennial home buyers, coupled with the work-from-home trend, is expected to keep building product sales high this year, observes Mike Cintolo, editor of Cabot Top Ten Trader.
Louisiana-Pacific (LPX) specializes in producing high-quality siding and engineered wood products, including oriented strand board (OSB) — a plywood substitute made from compressed wood wafers that’s around half the coast of traditional boards.
However, exterior wood siding is where the firm sees its strongest prospects, and LP’s siding solutions revenue grew more than twice the 13% increase in U.S. single-family housing starts last year.
To that end, LP is ramping up capacity in this segment, recently opening up a new siding mill in Houlton, Maine, with plans to increase siding capacity at its Sagola, Michigan plant. All in all, siding revenue broke a record in 2021 by surpassing $1 billion in annual sales, and the firm believes it can grow that business by 15% in 2022.
LP recently announced sales and earnings beats (a reason for the strength), featuring revenue of $1.3 billion that increased 31%, adjusted EBITDA that rose 38% to its second-highest quarterly level and per-share earnings of $5.08 that crushed estimates by 45 cents. The solid results were led by OSB sales of $744 million (up 38%) and a 17% increase in siding solutions sales.
Additionally, the company authorized the buyback of $600 million of its shares, bringing the total repurchase authorization to $814 million. While management expects OSB revenue in Q2 to be 7% lower sequentially, it sees siding sales jumping 20% in both Q2 and for the full year based on record demand for its SmartSide products. A modest dividend (1.2%) helps the cause.
After peaking around $75 a year ago, LPX entered what ended up being a year-long consolidation, with a tedious pullback last summer and, after retesting its old high, a vicious plunge into early April. But now LPX may want to get moving: The stock has been up four weeks in a row (market has been down all four weeks), including a strong-volume move last week. If you want to nibble here or on dips, you can.