(By Balachander) Deutsche Bank (DB) upgraded its rating on shares of Louisiana-Pacific Corp. (NYSE:LPX) to "Buy" from "Hold" and raised price target on the stock to $12 from $10.
"It's time. Housing demand is showing some signs of pick-up after around 5 yrs of anemic US housing starts. OSB prices are also trending higher. With around 9bsf of OSB capacity shuttered over the past 5-6 years & the entire supply chain constrained, we think even a relatively modest cyclical recovery in housing demand could significantly boost LPX's earnings," the bank wrote in a note.
On Monday, the Nashville, Tennessee-based manufacturer of building products announced the launch of an offering of $300 million in aggregate principal amount of Senior Notes due 2020. The company plans to use the net proceeds to repurchase, redeem or otherwise retire all of its outstanding 13% Senior Secured Notes due 2017, to pay related transaction costs.
The company's announcement of debt refinancing could boost annual EPS by about 0.11 to 0.12/share, the bank said.
DB said Curt Stevens' timing as new CEO looks good. Initial Q2 trends appear encouraging – vol's are gradually improving & prices are rising.
Beyond cyclical recovery in housing, the mid-2012 refinancing for its 2017 13 percent senior secured notes (sold at a substantial discount and with an effective rate of about 19 percent) could reduce annual interest expense by about $23 million to $25 million.
"Key risks include a delay in housing recovery leading to lower OSB prices. On the supply-side, the biggest risk is that producers bring back idled capacity too quickly - - - putting pressure on prices," the bank wrote.
The stock, which has been trading in the 52-week range of $4.41 to $10.18, edged 0.32 percent lower to trade at $9.46 on Tuesday.