Slowing Housing Market Raises Concerns for Louisiana-Pacific; Shares Fairly Valued

We are initiating coverage on Louisiana-Pacific Corporation with a fair value estimate of $58 per share and a no-moat rating. Louisiana-Pacific is a manufacturer of oriented strand board, or OSB, and engineered wood siding with production capacity spread across the United States, Canada, and South America. The firm’s commodity business, oriented strand board, can be immensely profitable when demand is strong, but margins crumble during times of weak demand as Louisiana-Pacific’s OSB operations possess no structural competitive advantages, in our view. Its siding solutions business produces engineered wood siding under its SmartSide brand. Louisiana-Pacific is able to exert pricing power and earn consistent returns in its siding business from its strong brand recognition and differentiated products. That said, the siding business does not represent a large enough portion of Louisiana-Pacific’s revenue and profits to enable it to consistently out earn its cost of capital.