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Morningstar | Louisiana-Pacific's Continued Investment in Siding Growth Should Stabilize Earnings

Louisiana-Pacific is the second-largest manufacturer of oriented strand board in North America, with nearly 5.9 billion square feet of capacity throughout Canada and the Southeastern United States. In addition, Louisiana-Pacific has 700 million square feet of OSB capacity in Chile and Brazil and is the only major OSB producer in the region. Domestically, Louisiana-Pacific has 1.8 billion square feet of siding capacity, sold under its SmartSide and CanExel brands.U.S. homebuilding and remodeling are Louisiana-Pacific's principal end markets. After seven lean years for residential construction, we expect favorable demographics, a tighter labor market, and relatively loose mortgage availability to catalyze a major improvement in homebuilding activity in the coming decade. We forecast U.S. housing starts to rise to roughly 1.4 million units in 2024 as demand rises and households form, which is in line with our forecast for a demographically sustainable long-term pace of about 1.4 million annually.We expect moderate profit growth for Louisiana-Pacific's OSB and siding businesses, which account for about 80% of revenue. We forecast OSB segment EBITDA to swell to nearly $330 million by 2024, up from cash break-even levels as recently as 2015, as the housing cycle turns in Louisiana-Pacific's favor. Over the same period, we expect EBITDA margins to climb to nearly 25% in this historically boom-or-bust business. We expect strong pricing to attract additional capacity, and as housing activity wanes to midcycle levels, we expect margins to contract to roughly 18%.In Louisiana-Pacific's siding segment, we believe homebuilding tailwinds will facilitate strong growth in sales and margins. We expect solid market share gains for SmartSide, as it is one of the more durable low-cost siding options. We forecast siding EBITDA to rise above $300 million by 2021 as capacity is converted from OSB to siding. By the end of our 10-year forecast, we expect EBITDA margins will normalize around 18% as competitors introduce similar products into the siding market.