Headquartered in Montreal, Canada, Resolute Forest Products Inc. (RFP) is a market leader in the forest products industry, offering a range of products that include market pulp, tissue, wood products and specialty papers. Its share price has increased nearly eight-fold from its 52-week low of $1.87, which it hit on June 29, 2020. The stock has gained 124.3% so far this year to close yesterday’s trading session at $14.67.
Its impressive performance can be attributed primarily to increasing demand for lumber in a red-hot housing market. In its first quarter earnings release, company President and CEO Remi G. Lalonde said, “This has been a very good quarter for our strong and growing wood products business as the lumber tailwind continues.”
On March 9, 2021, RFP announced its commitment to reduce absolute greenhouse gas (GHG) emissions by 30% by 2025 versus 2015 levels. So, we think RFP looks nicely positioned to continue gaining in the coming months.
Here’s what we think could shape RFP’s performance in the near term:
Increasing Demand for Lumber Products
A strong housing market has sent lumber prices soaring as companies struggle to meet the high market demand. In fact, according to a Business Insider report published on April 13, lumber prices surged more than 250% over the past year and roughly 348% from a five-year low hit on March 30, 2020. This backdrop has helped RFP gain significantly. And because the upward trend in the housing market is expected to continue given the low interest rate environment, the company is well positioned to continue benefiting.
For the first quarter, ended March 31, 2021, RFP’s sales increased 26.7% year-over-year to $873 million. Its sales for the quarter by its wood products segment increased 147.1% year-over-year to $430 million. The company’s operating income came in at $177 million versus an $8 million loss in the prior-year period. Its net income for the quarter was $87 million compared to a $1 million loss in the year-ago period. RFP’s non-GAAP EPS was $1.45 versus a $0.33 loss per share in the prior-year period.
Favorable Analysts Estimates
Analysts expect RFP’s revenue to increase 54% for the current quarter, ending June 30, 2021 and 26.6% in fiscal 2021. The company’s EPS is expected to increase 1,136% in the current quarter, 65.3% for the quarter ending September 30, 2021 and 675.4% in fiscal 2021. Also, Wall Street analysts expect the stock to hit $16.75 in the near term, which indicates a potential upside of 14.2%.
POWR Ratings Show Promise
RFP has an overall rating of A which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. RFP has an A grade for Growth, consistent with analysts’ expectations that its revenue and EPS will increase.
It has a B grade for Value. This is justified given its 2.92x forward non-GAAP P/E ratio, which is 82.5% lower than the 16.67x industry average. And in terms of forward EV/Sales as well, its 0.52x is 73.3% lower than the 1.95x industry average. The stock also has a B grade for Momentum, which is in sync with its 55.9% gains over the past three months and 8.5% returns over the past month.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve also rated RFP for Quality, Sentiment and Stability. Get all the RFP ratings here.
RFP is ranked #2 of 13 stocks in the A-rated Industrial – Paper industry.
If one is looking for other top-rated stocks in the same industry, with an Overall POWR Rating of Strong Buy or Buy, one can access them here.
RFP’s shares have advanced over the past few months on an increasing demand for lumber products. As one of the top players in the basic materials space, the company is favorably positioned to gain in the coming quarters on the back of its solid financials. So, we think the time is right to scoop up its shares because it is trading at a discount to its peers and has immense growth potential.
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RFP shares were trading at $14.47 per share on Thursday morning, down $0.20 (-1.36%). Year-to-date, RFP has gained 121.25%, versus a 12.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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