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Domtar Q3 Earnings: Is NYSE:UFS Expensive at 131.8x Price/EPS?

in EARNINGS/INVESTING IDEAS by

Domtar Corporation (NYSE:UFS) is scheduled to report Q3 earnings results before markets open for trading on November 6, 2020.

The company is expected to report earnings of -$0.26/share on revenue of $1.088 billion. The consensus earnings per share (EPS) of -$0.26/share is based on a poll of 10 analysts and represents a decline in eps of −128.7% over the same quarter last year, when the company reported earnings of $0.89/share.

The revenue forecast of $1.088 billion based on a poll of 6 analysts implies a year-over-year (YoY) decline in revenue of −15.2%. Last year the company reported $1.283 billion in revenue for the quarter.

Expected to report EPS of -$0.26/share for Q3, 2020
Metric Expected Prior Year YoY Change
Revenue $1,088.05 $1,283.00 −15.2%
EPS -$0.26 $0.89 −128.7%

Earnings Call Trends

Historically, management has exceeded analyst expectations 6 out of the last 8 tracked quarters, and missed expectations 2 quarters.

What are your expectations from Domtar Corporation for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 -$0.48 $0.36 175.4% Beat
Q1, 2020 -$0.22 $0.09 141.7% Beat
Q4, 2019 $0.08 $0.03 −61.5% Missed
Q3, 2019 $0.55 $0.89 60.8% Beat
Q2, 2019 $0.87 $0.57 −34.7% Missed
Q1, 2019 $1.36 $1.44 5.8% Beat
Q4, 2018 $1.62 $1.63 0.4% Beat
Q3, 2018 $1.17 $1.46 25.0% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2020, the stock price reacted by increasing 26.7%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
August 7, 2020 $22.47 $28.48 26.7% Increase
May 8, 2020 $22.05 $23.66 7.3% Increase
February 7, 2020 $36.31 $33.83 −6.8% Decline
October 25, 2019 $35.91 $37.90 5.5% Increase

The other question to consider is one of earnings manipulation. There is a lot of pressure on management each quarter to deliver on earnings expectations. The Beneish M-Score is a statistical model that provides some insight into whether the company might be manipulating earnings. With a Beneish M-Score of −2.91, the model suggests that the company is not likely to be an earnings manipulator. A value of −2.91 implies a 0.2% chance of earnings manipulation.

Fundamentals And Technical Analysis

Domtar Corporation is currently trading at $23.88/share, down −0.1% for the day. The company is trading at approximately 59.6% of its 52-week high of $40.05/share. The company’s stock price is down −16.2% since the last earnings report and down −11.7% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 32.06 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.


NYSE:UFS Stock Price Chart
Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 131.80 and a forward P/E multiple of 43.97.

Domtar Corporation’s current share price also implies a price-to-book (P/B) multiple of 0.58. The following table summarizes some other key fundamental ratios:

Data as of November 1, 2020
Metric Value
Last Reported Fiscal Period Key FY2020.Q2
Period End Date June 30, 2020
Stock Price (Current) $23.88
P/E Ratio 131.8x
P/E Ratio (Fwd) 44.0x
PEG Ratio −1.4
Total Debt / Total Capital 47.5%
Levered Free Cash Flow $167 million
EV / EBITDA 6.3x

Finbox

Domtar Corporation is a small-cap stock with a market capitalization of $1.318 billion and a total enterprise value of $2.386 billion. The company operates in the Materials sector and the Paper & Forest Products industry.

Domtar Corporation designs, manufactures, markets, and distributes communication papers, specialty and packaging papers, and absorbent hygiene products in the United States, Canada, Europe, Asia, and internationally. It operates through two segments, Pulp and Paper, and Personal Care. The company provides business papers, including copy and electronic imaging papers used in inkjet and laser printers, photocopiers, and plain-paper fax machines, as well as computer papers, preprinted forms, and digital papers for office and home use. It also offers commercial printing and publishing papers, such as offset papers and opaques used in sheet and roll fed offset presses; publishing papers, which include tradebook and lightweight uncoated papers for publishing textbooks, dictionaries, catalogs, magazines, hard cover novels, and financial documents; and base papers for envelopes, tablets, business forms, and data processing/computer forms. In addition, the company provides papers for thermal printing, flexible packaging, food packaging, medical packaging, medical gowns and drapes, sandpaper backing, carbonless printing, labels and other coating, and laminating applications; and papers for industrial and specialty applications, such as carrier papers, treated papers, security papers, and specialized printing and converting applications. Further, it designs, manufactures, markets, and distributes absorbent hygiene products, including adult incontinence and infant diaper products under the Attends, IncoPack, Indasec, Reassure, Chelino, and Comfees brand names. Additionally, the company offers branded and private label briefs, bladder control pads, protective underwear, underpads, and washcloths, as well as baby diapers, change mats, youth pants, and training pants for healthcare, retail, and direct-to-consumer channels. It serves merchants, retail outlets, stationers, printers, publishers, converters, and end-users. Domtar Corporation was founded in 1848 and is based in Fort Mill, South Carolina.

Expertise: financial technology, analyzing market trends. Brian is a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian’s background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors. Brian can be reached at brian@finbox.io or at +1 (516) 778-6257.

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