Analyst Actions: Credit Suisse Analyzes Norbord's Q2; Stock Near Yr Lows
Credit Suisse lowered its estimates and target price on Norbord Inc (NBD.TO), but kept an OUTPERFORM rating.
Earnings review: "Norbord reported headline Q2 2011 EPS of US$0.03 and EBITDA of US$10m. Adjusting for a tax benefit, the EPS figure is a loss of US$0.13/sh. In general, those figures missed our view, but exceeded the Street's expectations. Yet, we believe NBD's outlook will weigh on the stock. Specifically, looking ahead to Q3, the CEO is "becoming increasingly cautious about any potential for improved North American OSB prices in the near term...discretionary spending in the UK has dropped sharply and is now affecting our do-it-yourself kitchen sales."
Selected issues: Operational highlights include: (a) North American OSB shipments decreased by approximately 13% versus Q2 2010, but was flat versus Q1 2011; (b) European shipments increased by 10% and 1% versus Q2 2010 and Q1 2011, respectively; (c) North American Q2 2011 OSB prices declined versus Q2 2010 and Q1 2011; and, (d) European pricing was up in sequential quarters and year-over-year.
Investment thesis: "We continue to believe the worst is behind Norbord and many parts of the North American wood products value chain. Yet, market conditions are not overly robust to support unduly enthusiastic views on financial and operational performance. Finally, over a long period of time, we expect a potential OSB market consolidation with an Ainsworth and Norbord combination orchestrated by Brookfield Asset Management."
Valuation: "Given NBD's European concerns and our own moderating view of North American OSB, we reduced our earnings estimates for 2011, 2012 and 2013 from US$0.67, US$1.17 and US$1.83 to US$0.29, US$0.80 and US$1.30, respectively. The stock is highly related to the US housing market that continues to be challenged. With moderated estimates, we lower our target from C$18 to C$16 and maintain our Outperform rating that is supported by a DCF analysis."
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