Thursday, Credit Suisse downgraded Louisiana-Pacific Corp. (LPX) shares to Underperform from Neutral and lowered its price target to $4 from $5.
Analyst Dillon noted that the US Consumer Product Safety Commission, or CPSC, announced, on May 13, a voluntary recall by LPX of 48 million linear feet of composite decking material that he estimates could cost the company between $40 million ($0.36 per share) and $120 million ($1.03 per share) over the next 2-to-3 years.
The analyst said that to date, LPX has reserved only $17 million for this issue. Using the $0.70 midpoint for the cost of this recall, the analyst is rounding down his 12-month price target to $4 (from $5). In addition, the analyst downgraded the stock to Underperform.
As a result of this recall, and continued negative EBITDA from operations into 2010, the analyst does not see full-year positive free cash generation until 2011 at the earliest. With the recently agreed upon revolver still not available, and with significant debt maturities in 2010, the analyst increased his estimate of the odds that LPX could face another dilution-inducing liquidity crisis by 2010 to 25% from 15%.
The analyst's downgrade also is based partially on seasonal trends (as LPX's stock price this year has exceeded its prior-year October low; typically LPX trends lower over the course of the late Spring and Summer.) Although the analyst sees LPX achieving (or even exceeding) his new $4 price target next spring, he also believes the stock could trade somewhat below this level in coming months.
Currently, LPX is down $0.11 or 2.68% and trading at $3.99.
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