Analyst Note| Charles Gross |
Louisiana-Pacific sustained frothy results in its fourth quarter, with consolidated adjusted EBITDA margins nearing 35%. The sustained boom in lumber and panel prices has these companies practically printing money, but we expect pricing to come back to earth before long. In LP's case, it’s redeploying oriented strand board profits to convert assets for siding production. This quarter, management announced an engineered lumber facility's conversion for siding production and may sell its remaining engineered wood product facilities. We're happy to see the company taking this tact, given that siding cash flows should prove less volatile, and there's some chance the company can build a brand in siding. In contrast, OSB is a commodity that lacks sustainable pricing power. Our forecasts are mostly unchanged, so our $24 per share fair value remains intact, as does our no-moat rating. With shares trading over 80% above our fair value estimate, they look costly at this time.