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NEW YORK ( TheStreet) -- Which way will Louisiana-Pacific (LPX - Get Report) go? The stock is down 20% over the past several weeks, down 6% on the year. However, several weeks ago, shares reached a new 52-week high of $22.55. Now heading into the company's first-quarter earnings report on Tuesday, it seems investors are expecting the worst. Otherwise, why else would the stock be down 20% in a matter of weeks?
Is the 'Sandy Effect' Over?Despite LPX's ups and downs, the stock's not cheap -- sporting a P/E that is 3 times that of rival Weyerhaeuser (WY - Get Report). However, given LP's recent stock movement and the fact that the company is so closely tied to the housing recovery, it's anyone's guess where the shares are heading next.
There are two frames of thought here, one being on the company and the other being on the overall housing recovery. In terms of LPX, it's more of a cautious tenor, which (in my opinion) was spurred by management's own words. That's why investors have decided to take profits ahead of the first-quarter earnings report.
At the same time, the long-term direction of the overall industry is still positive, which is why the stock, by virtue of its high P/E, is being valued higher than the S&P 500. Of the 13 analysts covering the stock, the consensus estimate is 45 cents per share, while revenue is expected to come in $558 million. Management, however, offered no specific guidance during the fourth-quarter report, other than to say that it will tread cautiously. LPX has a P/E of 92 vs. WY's P/E of 34.
TheStreet's Jim Cramer correctly predicted Louisiana-Pacific's initial stock surge, while citing Hurricane Sandy as a likely catalyst. When Cramer made his bullish call last November, LP was trading at around $14.72. And given that the stock soared to $22.55 in March, representing gains of 53%, it seems that LP has peaked. Meanwhile, Weyerhaeuser, which was also on Cramer's bullish list, has posted gains of 23% and is still up 11% on the year. Whether the "Sandy Effect" is still in play, depends on what metric you use. For Weyerhaeuser, the debate is certainly up in the air, especially since the company is still posting 30% revenue growth. For Louisiana-Pacific, though, I'm inclined to believe that the "Sandy Effect" is over -- at least the Street seems to think so, even though the stock is being priced with the anticipated housing recovery. With first-quarter earnings on tap, management's main objective should be to rebuild and strengthen a seemingly fragile base of investors.
Expectations for the QuarterDespite the fact that LP is coming off a strong fourth quarter, during which revenue rose a year-over-year 47% on the strength of the housing recovery, management didn't seem too confident that this level of performance was sustainable. Guidance was overly cautious, if not filled with complete terror that there would be an imminent reversal in the consensus housing forecasts. During the fourth-quarter conference call in February, Louisiana-Pacific's CEO, Curtis Stevens, first spoke favorably about the housing recovery:
"The current consensus for housing forecast stands at about 990,000 for 2013 and right at 1.2 million (starts) for 2014. New-home inventory remains very, very low, at about 125,000 and that includes both completed homes for sale and homes under construction. And then existing home inventory is down 23% compared to the same time last year. And home prices are on the rise and mortgage rates are low, so I'm confident that the momentum that we have seen recently in housing starts will continue as pent-up demand is very large. ..."
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