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Norbord Inc. (OSB) is a manufacturer and seller of wood-based panels and oriented strand boards used in the housing industry. Lumber prices are witnessing an unusual late-season surge, mostly due to builder-friendly autumn weather amid the booming real estate industry. According to the National Association of Realtors, existing-home sales rose for the fifth consecutive month in October to an annual rate of 6.85 million, primarily due to the pandemic tailwind and dovish monetary policy.
April-to-June was the company’s strongest ever quarter ever, as a result of increased demand for new housing construction and repair-and-remodeling. The stock gained 35.5% year-to-date. This impressive performance combined with several other factors has helped OSB earn a “Strong Buy” rating in our proprietary rating system.
Here’s how our proprietary POWR Ratings system evaluates OSB:
Trade Grade: A
OSB is currently trading above its 50-day and 200-day moving averages of $32.10 and $25.51, respectively, indicating that the stock is in an uptrend. The stock gained 2.3% over the past three months, reflecting solid short-term bullishness.
OSB’s sales increased 72.2% sequentially to $725 million in the third quarter ended September 2020. The increase in revenue is primarily attributable to the higher lumber prices and shipment volumes across North America and Europe. Adjusted EBITDA increased 875.8% year-over-year to $322 million. Cash flow from operating activities grew 109.6% sequentially to $262 million over this period.
On November 19th, OSB announced that it has entered into a definitive agreement under which West Fraser will acquire all of its outstanding common shares. This will allow OSB shareholders to benefit from a stronger value creation platform.
OSB has recently announced that it has entered into an automatic share purchase plan (ASPP) with a broker to facilitate share repurchases. Previously, the company had received approval from the Toronto Stock Exchange (TSX) to purchase 4.08 million common shares, which represented approximately 5% of the company’s issued and outstanding common shares.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, OSB is well-positioned. The stock is currently trading just 4.1% below its 52-week high of $37.76, which it hit on November 19th.
The company’s net revenue grew at a CAGR of 6.3% over the past five years. OSB’s successful business strategy and strong consumer demand have allowed it to grow substantially.
Peer Grade: C
OSB is currently ranked #17 out of 42 stocks in the Industrial – Building Materials industry. Other popular stocks in this industry are James Hardie Industries (JHX), CEMEX (CX), and AAON, Inc. (AAON).
While JHX beat OSB by gaining 45.6% year-to-date, CX and AAON returned 22.2% and 32.5%, respectively, over this period.
Industry Rank: B
The Industrial – Building Materials industry is ranked #45 out of the 123 StockNews.com industries. The companies in this industry manufacture and sell construction products and building materials that are used in residential, industrial, commercial, and infrastructure construction.
Although most construction sites faced disrupted supply chains and operational restrictions amid the pandemic, the recovery in economic activity accelerated new housing construction and repair-and-remodeling demand in the third quarter. The demand for products under this industry is expected to increase significantly in the upcoming months, as more and more people are inclined toward purchasing houses in the low-interest-rate environment. The pandemic has also caused people to shift to bigger living spaces while working-and-learning from home, boosting sub-urban housing demand.
Overall POWR Rating: A (Strong Buy)
OSB is rated a “Strong Buy” due to its impressive financials, short-and-long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.
OSB is well-positioned to soar in the upcoming months despite gaining 35.5% so far this year, as the real estate market is expected to grow further in the upcoming months. Also, increasing consumer demand in the North American and European markets can further drive its earnings and revenue.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for OSB. It has an average broker rating of 1.4, indicating favorable analyst sentiment. Out of 9 Wall Street analysts that rated the stock, 7 rates it “Strong Buy”. OSB has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $2.31 billion for the quarter ending December 2020 indicates a 33.2% increase from the same period last year.
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OSB shares were trading at $37.36 per share on Monday afternoon, up $1.15 (+3.18%). Year-to-date, OSB has gained 41.65%, versus a 12.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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