Louisiana-Pacific (LPX) might not draw headlines often, but it remains a compelling long-term play in the building materials sector. With strong fundamentals in its siding division and a disciplined OSB market, LPX continues to deliver for investors — even without major media fanfare.

“Siding has achieved sales growth of +7% p.a. and EBIT growth of +11% p.a. since 2005, with an EBIT margin of 20% in FY 2024,” the company noted. That performance stems from structural advantages in its engineered wood products, which are replacing traditional materials like wood and vinyl.

The Siding segment now accounts for 55% of LPX's total revenue and stands out due to its 30%+ ROIC, resilient pricing, and high market share in a growing niche. Engineered wood siding has gained popularity due to its durability, ease of installation, and 50-year limited warranties — giving it an edge over traditional options.

“We remain invested due to the Siding segment's quality and management strength,” the report states, adding that further purchases could be considered during price dips.

OSB Still Cyclical, But Smarter

The OSB (Oriented Strand Board) segment, which makes up roughly 35% of LPX’s revenue, is more volatile but has matured thanks to industry consolidation. Four major players now control 70% of the market — up from less than 50% in 2005 — and are displaying rational pricing behavior.

CEO Brad Southern emphasized that today's production capacity is aligned with long-term housing demand, meaning fewer boom-and-bust cycles. “The capacity of the industry today is only designed for 1.5-1.7 million new housing starts,” he explained.

Even with headwinds like falling new housing starts (currently at 1.25 million annually), LPX’s OSB segment is poised to rebound when demand returns. Analysts point to an average normalized EBITDA of $300 million, with upside potential of $700 million in strong housing markets.

South America Adds Modest Support

LPX’s South American segment — combining Siding and OSB — accounts for less than 10% of revenue but contributes steady cash flow. Estimated at $240-$300 million in value, it rounds out the company’s international footprint.

Valuation and Fair Price Assessment

Using a sum-of-the-parts (SOTP) approach, the author values the Siding segment as 82% of LPX's total worth. Conservative valuation models peg the company's fair market cap between $5.8 billion and $8.7 billion, against its current $6.4 billion valuation — signaling it’s fairly priced.

“This is definitely a very good business,” the analyst said of the Siding unit. “It offers a high ROIC, high pricing power and a high moat that can still grow EBIT conservatively.”

Risks on the Horizon

Despite optimism, risks remain. A prolonged housing slowdown, unforeseen competition, or a disruptive innovation could challenge LPX’s current trajectory.

“If the siding segment turns out to be less attractive than expected, this also invalidates my thesis,” the analyst noted.

Conclusion and Investment Outlook

With engineered wood continuing to gain market share, a disciplined OSB environment, and strong cash flow generation, LPX remains a quietly powerful stock for long-term investors.

“Due to the high quality of the siding business, which offers very good downside protection, as well as the high quality of the management, I remain invested,” the analyst concluded. “I will be happy to take advantage of price drops as an opportunity to buy more shares of the company.”

Originally reported by Seeking Alpha.