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Bank of America Merrill Lynch Upgrades Domtar to ‘Neutral’

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Price movement

Domtar Corporation (UFS) has a market cap of $2.3 billion. It rose 0.67% to close at $37.38 per share on October 3, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 3.3%, -0.26%, and 4.6%, respectively, on the same day.

UFS is trading 3.3% above its 20-day moving average, 0.86% above its 50-day moving average, and 4.6% above its 200-day moving average.

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Related ETFs and peers

The Vanguard High Dividend Yield ETF (VYM) invests 0.03% of its holdings in Domtar. The ETF tracks the FTSE High Dividend Yield Index. The index selects US companies that pay high dividends, excluding REITS, and weights them by market cap. The YTD price movement of VYM was 10.1% on October 3.

The iShares MSCI KLD 400 Social ETF (DSI) invests 0.03% of its holdings in Domtar. The ETF tracks a market cap–weighted index of 400 companies deemed to have positive environmental, social, and governance characteristics by MSCI (Metals Service Center Institute).

The market caps of Domtar’s competitors are as follows:

  • International Paper (IP): $19.7 billion
  • WestRock Company (WRK): $12.2 billion

Domtar’s rating

Bank of America Merrill Lynch has upgraded Domtar Corporation’s rating to “neutral” from “underperform.”

Performance of Domtar in 2Q16

Domtar (UFS) reported 2Q16 consolidated sales of ~$1.27 billion, a fall of 3.3% from the consolidated sales of ~$1.3 billion in 2Q15. Sales of its Pulp & Paper segment fell 5.0% and sales of its Personal Care segment rose 5.6% between 2Q15–2Q16.

The company’s cost of sales, excluding depreciation and amortization and operating income, fell 0.44% and 37.1%, respectively, between 2Q15–2Q16. It reported closure and restructuring costs of $21.0 million in 2Q16, compared with $1.0 million in 2Q15.

Domtar’s (UFS) net income and EPS (earnings per share) fell to $18.0 million and $0.29, respectively, in 2Q16, compared with $38.0 million and $0.60, respectively, in 2Q15.

UFS’s cash and cash equivalents and inventories fell 11.9% and 1.7%, respectively, between 4Q15–2Q16. Its current ratio rose to 1.99x and its debt-to-equity ratio fell to 1.12x in 2Q16, compared with 1.97x and 1.13x, respectively, in 4Q15.

Next, we’ll look at Toyota Motor Corporation (TM).

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