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Domtar (UFS) Remains Poised for Healthy Long-Term Growth

On Apr 12, Zacks Investment Research updated the research report on paper and paper goods manufacturer Domtar Corporation UFS.

Domtar is a leading fiber-based technology company with a unique expertise in transforming raw materials into products that suit customer requirements. Domtar is currently seeking growth through profitable investment opportunities with a commitment to pollution-free environment and sustainable practices. The company is also streamlining the cost structure, improving revenue quality and maintaining a healthy cash flow with a disciplined approach to cash utilization.

A steady dividend payment policy is part of Domtar’s long-term strategy of providing attractive risk-adjusted returns to its stockholders. In addition, the company has historically repurchased shares as part of its balanced approach to deploy capital. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to execute its growth plan.

Domtar also continues to streamline its network to build a more cost-competent distribution channel. Schlumberger, a leading supplier of technology to the oil and gas industry, had invested in Domtar's CelluForce joint venture to explore the use of NanoCrystalline Cellulose to enhance the productivity of drilling operations in the industry. This is likely to reduce the input cost in the oil & gas industry that is plagued by the slump in prices and expected to boost Domtar’s bottom line.

However, the pulp and paper industry is highly cyclical. Fluctuations in the prices and demand for the company’s pulp and paper products could result in lower sales volumes and smaller profit margins. The strengthening U.S. dollar against pulp purchasing currencies is expected to hamper price realizations of Domtar's pulp products. In the paper segment, import challenges remain a headwind, although productivity and margin expansion are expected to remain on track. The long-term trends indicate some weakness in North American paper demand, which could hamper the company’s top line. Global demand for pulp is also likely to be volatile due to appreciation of the U.S. dollar and swings in consumer inventory, especially in China.

Nevertheless, we remain impressed with this Zacks Rank #3 (Hold) stock. Some other better-ranked stocks in the paper & related products industry include Sappi Limited SPPJY and Mercer International Inc. MERC, both carrying a Zacks Rank #2 (Buy) and Fibria Celulose S.A. FBR, which sports a Zacks Rank #1 (Strong Buy).

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DOMTAR CORP (UFS): Free Stock Analysis Report
 
FIBRIA CELULOSE (FBR): Free Stock Analysis Report
 
SAPPI LTD -ADR (SPPJY): Free Stock Analysis Report
 
MERCER INTL SBI (MERC): Free Stock Analysis Report
 
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