Analysts at Standard & Poor's Ratings Services said Thursday they are more confident in the outlook for Louisiana-Pacific as the downtown-based manufacturer gets a lift from an improving construction sector.
James Fielding and Tobias Crabtree reiterated their long-term ratings of LP's debt but raised their outlook to 'stable' from 'negative' in part because recent LP price hikes — implemented as demand for the company's materials is rising — appear to be sticking.
"A more favorable operating environment will lift EBITDA off deep cyclical lows to levels sufficient to reduce leverage below 4x next year," the analysts wrote.
Among the assumptions Fielding and Crabtree used in raising their outlook for LP is that the company should next year nearly double to 16 percent its 2011 gross margins thanks to higher OSB prices — they should top $200 per 1,000 square feet compared to $186 last year — and improved capacity utilization as starts jump another 20 percent to 920,000. Combined with LP's cash holdings of $427 million at the end of June, that will improve its debt service ratios, Fielding and Crabtree wrote.
Equity analysts tracking LP also are optimistic about 2013: Their consensus estimate for earnings per share is 29 cents versus a loss of a penny this year. The 2013 number has climbed from 17 cents two months ago.
Despite the brighter outlook for 2013, the S&P analysts said the chances of an all-out upgrade in LP's ratings remains slim. For that to happen, the U.S. housing market need to move back to its historical average of 1.5 million annual starts — "which we do not expect to occur until 2015 at the earliest."
Shares of LP (Ticker: LPX) closed Thursday trading at $13.29. They have climbed more than 60 percent this year and are back to where they were changing hands in February of 2008.