CIBC World Markets Inc. analyst Mark Kennedy initiated coverage of International Forest Products Ltd. (TSE:IFP.A) with a "Sector Outperformer" rating and $6.50 target price.
The company is a diversified lumber producer with annual capacity of 1.65 billion fbm, Kennedy noted.
U.S. housing market fundamentals continue to slowly improve and point to improving new home construction as well as increasing repair and renovation expenditures over the next two years. Kennedy believes house pricing is one key fundamental that needs to find a bottom in the coming months.
The company ships nearly 40% of its lumber volume to Asian markets (primarily China and Japan) and is well positioned to capitalize on continuing lumber demand growth in this region. The company also has controlled exposure to the Mountain Pine Beetle as it impacts only about 11% of its lumber capacity.
[Related -Tackling China's Debt Problem: Can Debt-Equity Conversions Help?]
The company has low leverage at 20.4% debt to cap and trades at an inexpensive EV/EBITDA multiple of 2.5 times based on mid - cycle lumber pricing. While initial price target is $6.50, Kennedy believes this stock could trade close to its NAV of $9.26 over the 2- to 3-year course of the next lumber cycle.
The brokerage introduced its 2012 loss per share estimate for IFP.A of $0.17 and its 2013 EPS estimate of $0.11.
IFP.A is trading up 1.95% at $4.70 on Thursday.