Domtar Corp Stock Downgraded (UFS)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Domtar (NYSE: UFS) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and a generally disappointing performance in the stock itself.

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Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Paper & Forest Products industry average. The net income increased by 60.7% when compared to the same quarter one year prior, rising from $28.00 million to $45.00 million.
  • The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, UFS has a quick ratio of 1.74, which demonstrates the ability of the company to cover short-term liquidity needs.
  • DOMTAR CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DOMTAR CORP reported lower earnings of $4.75 versus $9.02 in the prior year. This year, the market expects an improvement in earnings ($5.13 versus $4.75).
  • The gross profit margin for DOMTAR CORP is rather low; currently it is at 19.60%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.34% trails that of the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Paper & Forest Products industry and the overall market, DOMTAR CORP's return on equity is below that of both the industry average and the S&P 500.
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Domtar Corporation designs, manufactures, markets, and distributes communications papers, specialty and packaging papers, and adult incontinence products worldwide. It operates in three segments: Pulp and Paper, Distribution, and Personal Care. The company has a P/E ratio of 13.9, below the S&P 500 P/E ratio of 17.7. Domtar has a market cap of $2.43 billion and is part of the consumer goods sector and consumer non-durables industry. Shares are down 14.4% year to date as of the close of trading on Friday.

You can view the full Domtar Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

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