On Friday, RBC Capital Markets adjusted its stance on Clearwater Paper Corporation (NYSE:CLW), upgrading the stock from Sector Perform to Outperform. The firm, however, lowered the price target to $37.00 from the previous $48.00.
The analyst at RBC Capital Markets cited the valuation reset of Clearwater Paper as a reflection of the current challenges in the Solid Bleached Sulfate (SBS) market. Concerns stem from potential market shifts due to a significant capacity addition expected in mid-2025. Despite these challenges, the analyst sees a favorable risk-reward scenario for the company's shares.
According to the analyst's assessment, the low market expectations and the current valuation at trough levels present an opportunity. Clearwater Paper's recent acquisition, Augusta, which was purchased for $700 million earlier in the year, is projected to constitute the majority of the company's enterprise value, especially after the pro-forma tissue sale.
The RBC Capital Markets analyst also pointed out that the potential for industry capacity rationalization or conversion could lead to a tighter market. This perspective suggests a possible improvement in the market dynamics for Clearwater Paper.
Clearwater Paper's stock upgrade comes at a time when the industry is facing uncertainty, but RBC Capital Markets appears to see a silver lining for the company amidst these market conditions. The new price target of $37.00 reflects a recalibration in response to the current market environment and the company's strategic moves.
In other recent news, Clearwater Paper Corporation has made significant strides with its financial performance and strategic transactions. The company reported an adjusted EBITDA of $61.5 million for Q1 2024, exceeding RBC Capital Markets' estimate, and net sales of $496 million, largely driven by its tissue business. Moreover, Clearwater Paper has announced the sale of its tissue unit to Sofidel America Corporation for a total of $1.06 billion, a strategic move anticipated to close in late 2024, pending customary conditions.
RBC Capital Markets has acknowledged Clearwater Paper's efforts in executing these transactions and establishing a clear strategy for future operations. Despite this recognition, the firm maintains a Sector Perform rating, attributing its neutral stance to uncertainties in the Solid Bleached Sulphate market.
In terms of infrastructure, Clearwater Paper has disclosed a $23 million investment in a new facial tissue converting line at its Shelby, North Carolina plant. This investment is part of the company's commitment to meet growing customer needs. These recent developments indicate Clearwater Paper's commitment to shaping its trajectory and strengthening its market position.
InvestingPro Insights
Recent InvestingPro data provides additional context to RBC Capital Markets' upgrade of Clearwater Paper Corporation (NYSE:CLW). The company's market capitalization stands at $462.87 million, with a P/E ratio of 10.26, suggesting a potentially undervalued stock. This aligns with RBC's view of a favorable risk-reward scenario.
InvestingPro Tips highlight that management has been aggressively buying back shares, which could indicate confidence in the company's future prospects. Additionally, the valuation implies a strong free cash flow yield, potentially supporting the analyst's optimistic outlook.
However, it's worth noting that Clearwater Paper suffers from weak gross profit margins, with the latest data showing a gross profit margin of 13.15% for the last twelve months as of Q2 2024. This could be a factor in the challenges mentioned in the SBS market.
The stock's recent performance has been challenging, with a three-month price total return of -43.09%, reflecting the market's concerns about future industry capacity additions. Despite this, analysts predict the company will remain profitable this year, which may support RBC's upgrade decision.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Clearwater Paper, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.