On Dec 22, Zacks Investment Research initiated the research report on paper and paper goods manufacturer Domtar Corporation UFS.
Domtar is currently seeking growth through profitable investment opportunities with a commitment to pollution-free environment and sustainable practices. In order to achieve holistic growth, Domtar is streamlining the cost structure, improving revenue quality and maintaining a healthy cash flow with a disciplined approach to cash utilization.
A steady dividend payment policy is part of Domtar’s long-term strategy of providing attractive risk-adjusted returns to its stockholders. In addition, the company has historically repurchased shares as part of its balanced approach to deploy capital. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to execute its growth strategy.
Domtar also continues to streamline its network to build a more cost-competent distribution channel. Schlumberger, a leading supplier of technology to the oil and gas industry, had invested in Domtar's CelluForce joint venture to explore the use of NanoCrystalline Cellulose to enhance the productivity of drilling operations in the industry. This is likely to reduce the input cost in the oil & gas industry that is plagued by the slump in prices and expected to boost Domtar’s bottom line.
However, the pulp and paper industry is highly cyclical. Fluctuations in the prices and demand for the company’s pulp and paper products could result in lower sales volumes and smaller profit margins. The strengthening U.S. dollar against pulp purchasing currencies is expected to hamper price realizations of Domtar's pulp products. In the paper segment, import challenges remain a headwind, although productivity and margin expansion are expected to remain on track. The long-term trends indicate some weakness in North American paper demand, which could hamper the company’s top line. Global demand for pulp is also likely to be volatile due to U.S. dollar strength and consumer inventory swings, especially in China.
Nevertheless, we remain impressed with this Zacks Rank #3 (Hold) stock. Some other stocks in the paper & related products industry that are worth a look include Sappi Limited SPPJY, Stora Enso Oyj SEOAY and Koninklijke Philips N.V PHG, carrying a Zacks Rank #2 (Buy).
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