Domtar (UFS) Reaches 52-Week High: What’s Driving the Rise?

Actions of Domtar Corporation UFS hit a new 52-week high of $ 55.49 during the June 3 trading session, before retracting a bit to close at $ 55.40. The company’s business combination agreement with the Canadian company Paper Excellence contributes to this rally. In addition, increasing demand for softwoods and flake pulp and a trend of improving demand in the paper sector are driving stock price appreciation.

The stock has appreciated 78.9% in the past six months, outperforming industry growth of 30.7%.

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The company posted adjusted earnings of 9 cents per share in the first quarter of 2021, compared to an adjusted loss per share of 27 cents in the previous year quarter. Domtar has a surprise average profit over the last four quarters of 73.4%.

Determining factors

The company’s pulp business will benefit from strong demand for softwood pulp and flakes and supply constraints. Last month, Domtar announced plans to expand the Georgia-based Engineering Absorbent Materials (EAM) plant. The move will help the company grow its business as a global leader in absorbent materials and technology, offering lint pulp and airlaid nonwoven materials.

In the paper sector, the company has seen improved sales in recent months. Demand is expected to increase further as people return to schools and offices. Price increases and cost reduction efforts in the pulp and paper industry will help the company. It is on track to achieve annual cost savings of $ 200 million by the end of 2021.

In March, Domtar closed the sale of its personal care division to American Industrial Partners for $ 920 million. The divestiture supports Domtar’s primary objective of building an industry-leading paper, pulp and packaging business.

The company has identified up to four large-scale paper machine / mill reallocation projects that have the capacity to produce 2.5 million tonnes of containerboard. Based on these growth prospects, Domtar plans to enter the containerboard market with the conversion of its Kingsport, TN paper mill. When fully operational, the plant will become the second largest recycled containerboard machine in North America, with an annual production capacity of approximately 600,000 tonnes of high quality recycled liner and corrugated board. It has the potential to become one of the cheapest recycled containerboard plants in the United States. The conversion is expected to be completed by the end of 2022.

Last month, Domtar entered into an agreement with Paper Excellence, whereby the latter will acquire all of the issued and outstanding common shares of Domtar for $ 55.50 per share, in cash. This represents Domtar’s enterprise value of $ 3 billion. The transaction should be finalized in the second half of the current year. Paper Excellence intends to continue Domtar’s activities as a stand-alone business entity. This acquisition marks Paper Excellence’s foray into the US market and will help the company capitalize on Domtar’s broad global presence.

Positive growth projections

Zacks’ consensus estimate for the company’s current year earnings is currently set at $ 4.85, suggesting a whopping 24,150% growth from earnings of 2 cents per share in 2020.

Rank Zacks and other actions to consider

Domtar currently sports a Zacks Rank 1 (strong buy). You can see The full list of today’s Zacks # 1 Rank stocks here.

Some other actions of the same rank in the basic materials space are ArcelorMittal MT, Cabot Company TCC and Dow Inc. DOW.

ArcelorMittal has a projected profit growth rate of 984.7% for the current year. The company’s shares have climbed nearly 179% in the past year.

Cabot has an expected earnings growth rate of 125.9% for fiscal 2021. The company’s shares have grown 79.4% in the past year.

Dow has an estimated profit growth rate of 261.6% for the current year. The company’s shares have gained about 78% in a year.

5 actions in the process of doubling

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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