Louisiana-Pacific Corporation LPX, or LP’s, share price performance seems to have been gaining over the past three months. During the same time bracket, the company gained 12%, outperforming the Zacks Building Products - Wood industry, Zacks Construction sector and the S&P 500 Index. The detailed price performance is shown in the chart below.

Image Source: Zacks Investment Research

This American building materials manufacturer’s performance is benefiting from the strategic supply agreement with Lennar, cost control and margin expansion initiatives, and focus on shareholder value through a balanced capital allocation strategy. The partnership with Lennar is partially backing the company’s Siding and OSB business through increasing sales volume.

Moreover, since the company’s third-quarter 2024 earnings release on Nov. 5, investors’ sentiments have been boosted on the back of its raised 2024 guidance across Siding Solutions’ revenues and adjusted EBITDA. On Nov. 25, LPX hit a new 52-week high of $122.87 and is currently trading at $112.83 (as of Dec. 13).

During the past three months, LPX has also outshined a few of the other renowned market players including Boise Cascade Company BCC, UFP Industries, Inc. UFPI and Weyerhaeuser Company WY. During the said time frame, shares of BCC and UFPI have inched up 0.7%, respectively, while WY has lost 9.6%.

LPX Trading Above 50 & 200-Day Moving Average

Technical indicators suggest continued strong performance for Louisiana-Pacific. From the graphical representation given below, it can be observed that LPX stock is riding above its 50-day simple moving average (SMA) and 200-day SMA, signaling a bullish trend. A noteworthy aspect, the company started trading above its 50-day SMA on Nov. 5, 2024. Thus, the technical strength underscores positive market sentiment and confidence in LPX’s financial health and prospects.

50 & 200-Day SMA

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Factors Driving LPX Stock Upward

Accretive Partnership With Lennar: On April 10, 2024, Louisiana-Pacific entered into a nationwide supply agreement with Lennar Corporation. Per the agreement, Lennar will be engaging in expanding the use of LPX’s engineered wood building products, including LP SmartSide Trim & Siding, LP Structural Solutions sheathing, sub-flooring and oriented strand board (OSB). The partnership has aided LPX’s sales volume growth across its Siding and OSB segments to some extent. During the first nine months of 2024, net sales in the Siding and OSB segments increased year over year by 20% to $1.2 billion and 22% to $917 million, respectively.

By leveraging Lennar’s extensive market reach, LPX expects to witness stronger volume growth in 2025. The ongoing Fed’s rate cut scenario is expected to boost the housing market in the near term, thus opening doors for strong sales growth for the company.

Cost Control Initiatives: Louisiana-Pacific is effectively balancing between expanding its business prospects and reducing the cost structure. To counter the persisting inflation, the company has been executing cost-control and other operational strategies to expand its margins. Moreover, it is gradually transforming from a commodity producer to a more stable cash-generative business by increasing revenues and earnings before interest, tax, depreciation and amortization (EBITDA) mix.

During the first nine months of 2024, the company's adjusted EBITDA increased year over year by 61.6% to $564 million. The adjusted EBITDA margin also expanded 680 basis points to 24.9% during the same time frame. The uptrend was backed by the leverage from solid top-line growth backed by increased sales volume, favorable pricing and improvements in efficiencies. For 2024, LPX expects consolidated adjusted EBITDA to be in the range of $655-$675 million, notably up from $478 in 2023.

Shareholder Value: Thanks to Louisiana-Pacific’s focus on an effective and balanced capital allocation strategy, shareholders’ sentiments remain boosted. Apart from investing its free cash flow in enhancing its business activities, the company actively ensures that its shareholders are rewarded through share repurchases and dividend payments.

During the first nine months of 2024, the company used $188 million for share repurchases and $56 million for dividend payments.

LPX Trading at a Discount

Louisiana-Pacific is currently trading at a discount compared with the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. The discounted valuation indicates that despite the recent stock price increase in the past three months, it remains an attractive option for investors looking for a suitable entry point.

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Furthermore, the company’s trailing 12-month return on equity (ROE) is indicative of its growth potential and focus on maintaining shareholder value. Its ROE of 24.5% compares favorably with the industry’s 13.4%, indicating more efficiency in using shareholders’ funds than peers.

Estimate Trend Favors LPX

The Zacks Consensus Estimate for Louisiana-Pacific’s 2024 and 2025 earnings per share (EPS) has increased over the past 60 days. The details of the estimated figures can be observed from the chart below.

EPS Trend Revision

Image Source: Zacks Investment Research

Should You Say Yes to LPX Stock?

Louisiana-Pacific is benefiting from strong sales volume growth thanks to the Lennar collaboration and strength in single-family starts, which is reflected mainly across its Siding and OSB segments. Furthermore, its extensive margin expansion initiatives, favorable pricing and focus on rewarding shareholders are additionally fueling its prospects.

Moreover, by trading at a discount and riding above its 50 and 200-day moving averages along with favorable earnings estimates, LPX stock is inducing bullish sentiments among investors. Thus, based on the overall discussion and optimism revolving around the ongoing Fed rate cuts, investors can consider adding this Zacks Rank #1 (Strong Buy) stock to their portfolio for now. You can see the complete list of today’s Zacks #1 Rank stocks here.

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UFP Industries, Inc. (UFPI) : Free Stock Analysis Report

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