Despite falling short of first-quarter earnings expectations, the stock of wood panel maker Norbord Inc. is poised to rise, according to Desjardins Securities.
Citing a fortuitous price surge in oriented strand board (OSB) and blaming the Toronto-based company’s underperformance on bad weather, Desjardins analyst Pierre Lacroix pegged Norbord stock at $20.50, up from $17.25, while maintaining a hold rating.
On Tuesday, Norbord posted first-quarter EBITDA of US$9 million and loss of US12¢ per share, compared with market consensus of US$16-million and EPS of US0¢.
Mr. Lacroix attributed those results to weather conditions which impaired shipments and raised costs.
The company should show “material improvement” in the second quarter, he said.
Since the beginning of April, OSB prices have soared, reaching the highest levels in five years, which the company expects to produce EBITDA of US$17-million in April alone.
“Over the longer term, management believes prices are not sustainable at these levels, and should decline later this year until a more solid U.S. housing recovery takes place,” Mr. Lacroix said.
Rising supply should also put downward pressure on prices, he said.
“We expect volatility will return as soon as pricing pressure resurfaces in the coming weeks.”
For the time being, Norbord will capitalize on inflated commodity prices, but into 2011, a normalized OSB market will put downward pressure on earnings.
Tim Shufelt