TRG | The Bottom Line – 2/2

TRG initiated coverage of Louisiana Pacific (LPX) last week, it’s second initiation this month (don’t expect this pace to continue). The LPX story is a unique growth company in the building products industry that combines several of TRG’s favorite themes, including: 1) the two key segments, Siding and OSB, are both well into a transformation that still offers meaningful sales and profit upside, 2) the Siding business is characterized by durably high-growth and high and expanding margins as it takes share from other materials, and 3) there is meaningful upside (70-90% over 3-4 years) to the stock if the Siding business gets an appropriate multiple on future EBITDA. Most of the company’s value is in the Siding business, and we believe the Siding business should get a 13-15x multiple (similar to peers JHX, TREX, AZEK) on future segment EBITDA and that OSB should get ~4-5x normalized EBITDA. The balance sheet is conservative and excess FCF is primarily deployed to share buybacks (Q3’20 share count was 113MM, current share count is 72MM).