Company Reports

No-moat Louisiana-Pacific started the year on solid footing with impressive first-quarter results. Net sales soared over 24% year over year on strong performance from the oriented strand board and siding solutions businesses. While housing markets have been largely stagnant, demand for new single-family housing construction has driven robust growth for OSB and siding. We forecast single-family housing starts will grow around 4% in 2024, which should drive demand for OSB and siding, benefiting much of Louisiana-Pacific’s business. We've increased our fair value estimate to $62 per share from $54 due to higher near-term revenue and profitability in our forecast.

Louisiana-Pacific manufactures oriented strand board and engineered wood siding. It has over 7 billion square feet of production capacity across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market, which accounts for over 90% of sales (73% in the US and 20% in Canada).

New single-family home sales increased 4% in 2023 to 666,000 units, as homebuilders capitalized on a dearth of existing for-sale inventory while also offering more sales incentives, cutting base home prices, and building smaller homes to improve affordability. By the fourth quarter of 2023, homebuilders began to pull back on sales incentives as the average 30-year fixed mortgage rate retreated from 7.62% in October 2023 to 6.64% in January 2024. However, mortgage rates have trended higher recently, and we now forecast the average 30-year fixed rate will be 6.50% in 2024, up from our previous forecast of 6.10%. Even so, that’s lower than the 2023 average of 6.81%, and we think homebuilders won’t hesitate to increase sales incentives if needed; they still enjoyed above-average gross profit margins last year with elevated incentives. As such, in 2024, we think new-home sales will increase 9% to 730,000 units and single-family housing starts will increase 4% to 985,000 units. However, we expect total housing starts will decline roughly 5% to 1,345,000 units due to a 23% decline in multifamily starts to 360,000 units, as there’s currently approximately 1,000,000 multifamily units under construction—the largest backlog in at least 50 years.

No-moat Louisiana-Pacific's fourth-quarter results were largely in line with our expectations. Net sales in the quarter were down 7% year over year, but full-year sales tumbled 33% from the year prior, due to substantial weakness in residential housing markets, while favorable oriented strand board, or OSB, pricing offered some relief in the fourth quarter. We've increased our fair value estimate to $54 per share from $52, due to the time value of money.

Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding. The company has over 7 billion square feet of production capacity spread across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market as it accounts for over 90% of sales (73% in U.S. and 20% in Canada).

New-home sales have rebounded since the spring of this year as sales incentives and price reductions have attracted buyers who have fewer options in the supply-constrained existing-home market. That said, homebuilder sentiment data tells us that smaller builders remain cautious. Even so, we forecast single-family starts to increase by 3% in 2024, to 0.92 million units. However, we project this increase in single-family starts will be more than offset by a 24% decline in multifamily starts, to 0.36 million units. Multifamily construction has been robust for the past three years, but a record construction backlog and higher construction and financing costs have tamed developers' appetite for new multifamily projects.

Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding. The company has over 7 billion square feet of production capacity spread across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market as it accounts for over 90% of sales (76% in U.S. and 18% in Canada).

No-moat-rated Louisiana Pacific reported third-quarter results that were largely in line with our expectations as the company continues to navigate a challenging operating environment. Net sales fell over 14% year over year as all segments reported double-digit declines. LP’s end markets remained constrained as higher interest rates and weak new residential housing construction weighed on demand for wood products. While the company has made sequential progress, housing markets have shown few signs of improvement in the second half of the year. We've increased our fair value estimate to $52 per share from $51 due to the time value of money.

New-home sales have remained resilient despite worsening housing affordability in recent months amid rising mortgage rates, with little relief in home prices in most markets. Year-to-date new-home sales through July were about even with the year-ago period, compared with a 22% decline in existing-home sales. The key to homebuilders’ relative success this year has been their ability to improve affordability by offering sales incentives, lowering base prices, and building smaller homes. According to the National Association of Home Builders, the share of builders offering incentives was 55% in August, up from 52% in July but down from 62% last year. One fourth of homebuilders reported lowering base prices by 6% on average. Homebuilders have also boosted production of speculative homes to capitalize on the tight supply of existing for-sale homes. Spec building also helps builders better manage construction cycle times and costs.

Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding. The company has over 7 billion square feet of production capacity spread across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market as it accounts for over 90% of sales (76% in U.S. and 18% in Canada).

No-moat-rated Louisiana-Pacific reported lackluster second-quarter results as lumber markets faced persistent pressure amid a stagnant housing market. Net sales plunged 46% year over year as demand for wood products remained hampered across LP’s markets. While all four segments reported double-digit revenue declines in the quarter, LP’s oriented strand board, or OSB, business was hit the hardest as softening demand weighed heavily on selling prices. Louisiana-Pacific faces a difficult second half of the year as lumber prices remain well below pandemic-era highs and rising interest rates continue to constrain housing markets. Nevertheless, we maintain our $51 fair value estimate.

Through the first four months of 2023 (typically viewed as the “spring selling season” for homebuilders) new home sales significantly outperformed existing home sales. Indeed, April year-to-date new home sales declined roughly 10% year over year compared to over a 26% decline for existing home sales. New home sales improved sequentially during the first four months of the year, and April sales increased 11% year over year, albeit on an easy prior-year comparison (April 2022 new sales were down 24% year over year).

No-moat Louisiana-Pacific reported first-quarter results that were largely in line with our expectations. Lower wood product prices and moderating demand weighed on the firm, with revenue decreasing 50% year over year. Despite relative strength from the siding business, oriented strand board, or OSB, continued to underperform as prices pushed lower. Louisiana-Pacific reported a $30 million operating profit in the quarter, down significantly from over $550 million a year ago amid lower prices and moderating demand. We've decreased our fair value estimate to $51 from $52 due to our expectation of lower OSB prices through 2023 than we had previously anticipated.

Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding. The company has over 7 billion square feet of production capacity spread across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market as it accounts for over 90% of sales (76% in U.S. and 18% in Canada).

U.S. home sales slowed significantly in 2022 as rising mortgage rates and elevated home prices made homeownership less affordable for more Americans. By mid-2022, the average 30-year fixed mortgage rate had increased roughly 300 basis points year over year to over 6%. According to estimates from the National Association of Home Builders, this rate increase priced out more than 16 million households. We also think higher rates and general economic uncertainty caused some qualified prospective buyers to move to the sidelines. All told, 2022 new- and existing-home sales declined 17% and 18% year over year, respectively.

No-moat-rated Louisiana-Pacific reported fourth-quarter results that were largely in line with our expectation as lower lumber prices and softening demand weighed on its financial performance. Net sales in the fourth quarter decreased 15% year over year, largely due to weakness in the firm’s oriented strand board, or OSB, business. That said, full-year 2022 revenue held up relatively well, declining only 2% due to strong demand and pricing in the first half of the year.

Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding. The company has over 7 billion square feet of production capacity spread across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market as it accounts for over 90% of sales (76% in U.S. and 18% in Canada).

We are initiating coverage on Louisiana-Pacific Corporation with a fair value estimate of $58 per share and a no-moat rating. Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding with production capacity spread across the United States, Canada, and South America. The firm’s commodity business, oriented strand board, can be immensely profitable when demand is strong, but margins crumble during times of weak demand as Louisiana-Pacific’s OSB operations possess no structural competitive advantages, in our view. Its siding solutions business produces engineered wood siding under its SmartSide brand. Louisiana-Pacific is able to exert pricing power and earn consistent returns in its siding business from its strong brand recognition and differentiated products. That said, the siding business does not represent a large enough portion of Louisiana-Pacific’s revenue and profits to enable it to consistently out earn its cost of capital.

Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding. The company has over 7 billion square feet of production capacity spread across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market as it accounts for over 90% of sales (76% in U.S. and 18% in Canada).

We are dropping coverage of Louisiana Pacific. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.