Domtar's AHP Acquisition Earns "Outperform" Reiteration from BMO Capital Markets (UFS)

Domtar’s AHP Acquisition Earns “Outperform” Reiteration from BMO Capital Markets (UFS)


Stephen Atkinson, an analyst with BMO Capital Markets, maintained an “Outperform” and price target of $90.00 for paper company Domtar Corp (UFS).

The reiteration came on the heels of Domtar’s completed acquisition of AHP, which closed on Monday, July 1. AHP is the U.S.’s biggest diaper supplier.

The BMO Capital Markets analysts commented, “AHP has annual sales of $320 million and EBITDA of $31 million. Domtar estimates synergies of $10 million within two years, implying a simple payback of 6.5 years. The acquisition provides Domtar with access to the retail sales channel. Domtar would combine its Attends adult incontinence diaper line with the AHP baby diaper line. AHP is the largest producer of private-label infant diapers (e.g., Fisher Price Happy Nights) with two modern manufacturing facilities in Delaware, Ohio (near Columbus), and Waco, TX. Domtar could install a manufacturing line at the Waco, TX, facility rather than shipping from Greenville, NC, enabling it to better service the West Coast market and save about 1,300 miles in freight. Domtar intends to grow its diaper business to over $200 million EBITDA by 2017. We estimate Divisional 2014 EBITDA at $100 million. Domtar stock is down 24% in the past year. We consider the stock attractive for value investors.”

Domtar was up slightly today, but is down over 20% YTD.

The Bottom Line

Shares of Domtar Corp (UFS) have a yield of 3.17% based on Wednesday’s closing price of $69.47.

Domtar Corp (UFS) is not recommended at this time, holding a DARS™ Rating of 3.2 out of 5 stars.

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