Here's Why You Should Hold On To Domtar (UFS) Stock Now

Leading paper and paper products manufacturer Domtar Corporation (TO:UFS) manufactures and distributes a wide array of fiber-based products including communication papers, specialty and packaging papers and adult incontinence products. Domtar also owns and operates an extensive network of strategically located paper and printing supplies distribution facilities. The company is the largest integrated marketer of uncoated freesheet paper in North America with established brands such as Cougar, Lynx Opaque Ultra, Husky Opaque Offset, First Choice and Domtar EarthChoice.

Growth Drivers

Domtar is currently seeking profitable investment opportunities, with a commitment to pollution-free environment and sustainable practices, for a balanced organic and inorganic growth. Last October, Domtar completed the acquisition of the privately-held Home Delivery Incontinent Supplies Co. The strategic acquisition strengthened the Personal Care segment with complementary products and augmented its global footprint in healthcare markets, particularly in Europe.

The company started the second-quarter of 2017 on a positive note with an average gain of 0.8% as against a decline of 0.8% for the Zacks categorized Paper & Paper Products industry.

In order to fuel its growth momentum, the company is streamlining the cost structure, improving revenue quality and maintaining a healthy cash flow with a disciplined approach to cash utilization. In addition, Domtar is optimizing its operations related to fluff pulp production at its Plymouth mill in North Carolina. Fluff pulp is bleached softwood cellulose fiber and is primarily used across the globe for absorbent applications in baby diapers, feminine hygiene and adult incontinence products.

The company is undergoing a business restructuring process, which includes the permanent closure of the small pulp dryer facility and phasing out of the related assets. Simultaneously, Domtar intends to reduce the excess workforce by about 100 positions to right-size the employee count for optimum utilization of resources. The company has set an annualized production target of approximately 380,000 metric tons of fluff pulp for the Plymouth mill, including the manufacture of Lighthouse Fluff, the benchmark grade for high-quality fluff pulp. Domtar expects the entire restructuring process to be completed by mid-2017.

With stringent cost-cutting initiatives and focused operations for healthy organic growth, Domtar appears to be a perfect long-term bet for investors compared to its peers.

Zacks Rank & Stocks to Consider

Domtar currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry include DS Smith Plc DITHF, Gerdau S.A. (NYSE:GGB) and Sappi Limited (OTC:SPPJY) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DS Smith has a long-term earnings growth expectation of 7%.

Gerdau is trading at a forward P/E (F1) of 30.18x.

Israel Chemicals has a long-term earnings growth expectation of 4.7%.

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