Investors have doubted the recovery of Louisiana-Pacific (LPX)despite asharp bounce in the prices for its key product in the last month. That’s to their credit, according to UBS, which issueda downbeat analysis of the home-building products maker’s current plight.
Prices of the oriented strand board that is Louisiana-Pac’s signature product – and one that’s beenin the midst of a persistent decline in demandamid the housing crisis -jumped 25% in June. While that’s come off some relatively low levels, a 25% bounce is an impressive move.
But UBS argued that the turn in pricing didn’t signal any sustainable recovery, but insteadmostly reflected a modest inventory build after LPX customers depleted their inventories in preceding months. Therewould have been a small measure of a seasonal bulge in demand, but itturned out to be smaller than usual, and camelater in the calendar thanin previous years.
That’s meant that it won’t do anything to help Louisiana-Pacific’s second quarter. Analysts expected the companyto record a loss of 32 cents a share when it reports its results July 27. UBS said it anticipated a loss of 33 cents a share for the period.
Because of the downturn in demand,the OSB manufacturers have been running at less than 40% capacity. There could be some urgency to boost that output, so a bump in prices, in the long term, could pose a problem for the business, if it incents those competitors to reignite capacity to levels that don’t match demand.
Louisiana-Pacific shares eased abotu 2% in Tuesday’s trading.
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