Here's Why Louisiana-Pacific (LPX) Stock Makes a Solid Pick

Shares of Louisiana-Pacific CorporationLPX have lately been riding high. This year, the stock has climbed 50.4%, comparing favorably with the 20.7% rally by the industry it belongs to.

Earnings estimates for Louisiana-Pacific have exhibited an uptrend, reflecting optimism in the stock's prospects. The Zacks Consensus Estimate for the company's current-quarter and current-year earnings have moved north by 18.8% and 12.2%, respectively, over the past 60 days. The positive earnings estimate revision testifies to the confidence that analysts have in the company and substantiates the Zacks Rank #1 (Strong Buy) for the stock. You can see the complete list of today's Zacks #1 Rank stocks here .

Let us delve deeper into the other factors which make this stock a lucrative pick.

Solid Growth Prospects

The leading manufacturer of quality engineered wood building products has been expanding its product range to accommodate all consumer demand and thereby drive top line. In fact, in its last-reported quarter, Louisiana-Pacific's net sales increased 19% year over year. The solid top-line performance led to a 107.1% increase in its bottom line.The solid results were aided by higher demand for products and increased Oriented Strand Board or OSB pricing. Siding and Engineered Wood Product also generated higher revenues with improved pricing.

Further, the company expects to continue with sustainable improvement projects, including consistent siding growth and instigation of new specialty products in the second half of 2017. The year-over-year increase in single-family starts raises hopes of a profitable second half for the company despite the constraints of labor shortage and lot availability.

Louisiana-Pacific has solid growth prospects as evident from the expected 137.8% year-over-year earnings growth (significantly higher than the industry's average of 30.8%) for the current year. The Zacks Consensus Estimate is pegged at $2.12 per share.

Meanwhile, the company's sales are expected to increase 21.3% in the current year compared with the industry's average growth of just 3%. Hence, Louisiana-Pacific makes for a great pick in terms of growth investment supported by a Growth Score of A.

Barrier Technology Acquisition

Recently, Louisiana-Pacific acquired International Barrier Technology Inc., a company known for manufacturing fire-retardant coating used in engineered wood products. The agreement finally closed at $22 million, making Barrier Technology a wholly own subsidiary of Louisiana-Pacific.

In the view of increasing demand for fire-resistance products in residential and commercial buildings, the Barrier Technology buyout is expected to prove beneficial for the company. To improve the quality of its engineered wood building products, Louisiana-Pacific saw immense potential in Barrier Technology's branded product - LP FlameBlock Fire-Rated OSB Sheathing and Blazeguard FR Deck Panel. This particular product is used to make engineered wood fire resistant.

As per the company, this acquisition will ensure long-term support to Louisiana-Pacific in terms of investments in FlameBlock market development and product sales.

Solid VGM Score

The company boasts 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 a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) make lucrative investment choices.

Superior Return on Equity (ROE)

Louisiana-Pacific has an ROE of 17.1%, a lot better than the industry average of 8.3%. This shows that the company reinvests its cash more efficiently.

Valuation Looks Rational

Louisiana-Pacific has a Value Score of B, putting it into the top 40% of all stocks we cover from this perspective.

The stock currently has a trailing 12-month Price/Book (P/B) ratio of 3.1, comparing favorably with the industry's P/B ratio of 3.1. Hence, its lower-than-market positioning hints at more upside in the quarters ahead.

Also, the company has a trailing 12-months price-to-earnings (P/E) ratio of 19.5, while the industry's average stands at 31.3. Moreover, its forward P/E ratio (compared with this year's earnings) is 13.5, compared with the industry's 26.1. This indicates a slightly more value-oriented path ahead for Louisiana-Pacific.

Other Stocks to Consider

A few other top-ranked stocks in the construction sector are Potlatch Corporation PCH , Beazer Homes USA, Inc. BZH and KB Home KBH .

Potlatch, a Zacks Rank #1 stock, is expected to witness 107.1% growth in earnings this year.

Beazer Homes carries a Zacks Rank #2 and is likely to witness a rise of 60.6% in earnings for the current quarter.

KB Home, also a Zacks Rank #2 stock, is expected to witness 56.8% growth in fiscal 2017 earnings.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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