Analysts Give Domtar Mixed Grades After Earnings Report

Domtar Inc.’s (DTC) fourth quarter loss of 3¢ per share excluding extraordinary items came in below analyst expectations.

The Montreal-based paper producer is in the midst of a restructuring plan ahead of its merger with Weyerhaeuser Co.’s (WY) fine paper division, which will create North America’s largest producer of these products.

Shareholders will vote on the $3.3-billion merger later this month and the deal is expected to close in March.

Domtar’s disappointing results are due to weakness in its lumber business and seasonal slowdowns in both paper volume and prices, Desjardins Securities analyst Pierre Lacroix said in a research note.

He has maintained his “hold” rating on the company’s shares and C$9.30 price target, which is roughly where the stock currently trades.

Mr. Lacroix notes that while pressure on Domtar shares could continue following the completion of the merger, the potential for market conditions to improve and what he considers the company’s reasonable valuation, suggests further share price weakness could provide a good buying opportunity.

Laurentian Bank analyst Yuri Lynk downgraded his recommendation on Domtar shares to “hold” from “buy,” but is more optimistic with a US$8.85 price target, which represents upside of roughly 12%.

Raymond James analyst Daryl Swetlishoff is even more bullish and has a C$11.50 price target on the stock, which translates to an expected appreciation of more than 23%.

DTC 1-yr chart: